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Employer-Provided Awards and Benefits

Based on the Internal Revenue Code (IRC), most employee awards are considered taxable compensation. However, certain exceptions allow some awards to be excluded from taxable wages. These exceptions fall under:

  • IRC §132 – De Minimis Fringe Benefits
  • IRC §74 – Employee Achievement Awards
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  • De Minimis Fringe Benefits (Tax-Free Nominal Gifts)

    Under IRC §132(e), employers may provide small-value items to employees on a tax-free basis, as long as they are occasional and of nominal value.

    Examples of Qualified De Minimis Awards:

    • Coffee, doughnuts or snacks
    • Occasional meals or staff picnics
    • Holiday or birthday gifts (e.g., books, flowers or fruit)
    • Tickets for entertainment events
    • Small tokens of appreciation (e.g., a turkey, ham or similar gift)
    Retirement gifts may also qualify as de minimis if the value is within the dollar threshold.

    The IRS does not specify a dollar amount of nominal value, but $100 or less is generally considered reasonable for non-retirement items when evaluating the fair market value of items allowed as de minimis benefits. See University Guidelines for specific details and instructions regarding meals, incentive awards, flowers, and retirement gifts.

    Not Qualified Under De Minimis Rules:

    • Cash
    • Gift cards or certificates
    • Cash equivalents (e.g., credit or charge cards)

    Even if the amount is small, these are always considered taxable compensation and must be reported.

  • Employee Achievement Awards

    IRC §74 allows certain non-cash awards to be excluded from taxable wages when they are considered "employee achievement awards" under a qualified plan. The university plan details can be found on HR Staff Service Awards.

    To qualify, the award must:

    1. Be tangible personal property (not cash or cash equivalents)
    2. Be given for length of service or safety achievement
    3. Be part of a meaningful presentation
    4. Be provided under conditions that do not resemble disguised compensation

    Limits and Restrictions:

    • Maximum value: $1,600 per year, per employee (under a qualified plan)
    • Length of service awards: Must be at least 5 years apart
    • Safety awards: Cannot be given to managers, administrators, clerical or professional staff; and no more than 10% of eligible employees can receive them in a year

  • Taxable Awards & Reporting Requirements

    If an award does not meet the requirements of IRC §132 or §74, it is considered taxable wages and must be reported.

    Department Responsibilities:

    • Report taxable gifts (e.g., gift cards) to Tax Services using the Gift Reporting Form.
    • Submit reports before the end of the pay period in which the reportable item was given.
    • For W-2 year-end processing, all reportable gift items given within the calendar year must be reported to Tax Services by the first Friday in December.
    • Do not submit a gift report for gift cards purchased through Positively U, as they report directly to Tax Services.

  • Health Benefits

    Employer-paid health insurance coverage is generally excluded from an employee’s taxable wages when it covers the employee, their spouse, or dependents. Under federal tax law, domestic partners are not recognized as spouses or dependents for tax purposes, even if the relationship is legally recognized by a state.

    When a domestic partner does not meet the IRS definition of a tax dependent, the portion of the premium paid by the employer for their coverage is treated as taxable wages to the employee. The taxable amount appears on the employee’s paycheck in the Employer-Paid Benefits section and is subject to payroll tax withholdings.

  • Education Assistance

    The university provides several education-related benefits, which may be excluded from taxable wages if they comply with IRS requirements. Benefits that don’t meet these requirements are treated as taxable wages and subject to payroll tax withholdings.

    Tuition Reduction Plan (IRC §117(d))

    Eligible employees may receive tax-free tuition reductions offered by the university when applied to undergraduate-level coursework. This tax-free benefit extends to employees, their spouses, and dependents.

    Graduate-level tuition reductions are only tax-exempt when provided to graduate students who serve as teaching or research assistants, as defined by IRS guidelines. For details, visit the HR Tuition Reduction page.

    Educational Assistance Program (IRC §127)

    Under Section 127 of the Internal Revenue Code, up to $5,250 per calendar year in educational assistance can be excluded from an employee’s wages.

    The university offers an IRC Section 127 Educational Assistance plan that integrates with the Tuition Reduction Plan and applies to an employee’s graduate-level tuition.

    Working Condition Fringe Benefit (IRC §132(d))

    Educational expenses paid or reimbursed by the university may qualify as a working condition fringe benefit and be excluded from taxable income if the education:

    • Maintains or improves skills needed in the employee’s current job, or
    • Is required by the university or by law as a condition to continue employment or retain current status.

    Non-qualifying education, such as coursework that:

    • Is needed to meet minimum job requirements, or
    • Qualifies the employee for a new trade or profession,

    Does not meet the criteria for this exclusion and is treated as taxable wages to the employee.

  • Household Moves

    Moving expenses reimbursed or paid by an employer are treated as taxable wages. Departments may process moving allowance to be paid through Payroll. It is included in the hiring employee’s wages and is subject to the applicable tax withholdings.

    This amount is reported on the employee’s Form W-2 as part of their taxable wages in the year it is paid.

    Learn more in University Procedure 5-403I and on the Household Moves page.