Financial Services Manual (FIN)

Effective: 10/22/1993

Revised: 9/12/2012

FIN 420–04: Awards to Faculty and Staff, and Related Tax Status

Purpose

To describe permitted employee awards, procedures for processing the awards, and the tax implications for receiving awards

Sources

Internal Revenue Service

University policy

Applicability

This policy applies only to nonsponsored agency/orgs

Note:

Grant restrictions typically prohibit payment of any awards on sponsored project agency/orgs.

Background

Financial Services occasionally receives inquiries regarding awards and gifts to faculty and staff and the applicable tax implications. Confusion has existed regarding the university policies and procedures in these situations, partially due to the terms “awards” and “gifts” sometimes incorrectly being used synonymously.

Gifts made from university funds to organizations (including student organizations) or individuals are prohibited by university policy, as well as the State of Arizona Constitution, as noted in FIN 401–03, “Prohibited Transactions.”

Awards are distinguished from gifts in that:

1. awards are based on performance and/or objective criteria

   and

2. a public purpose is served in making the award payment.

In accordance with university policy, awards cannot be charged to state funds except for employee postgraduate research stipends/grants.

Policy

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Employee Postgraduate Research Stipends/Grants

Employee research stipends/grants may be processed on nonsponsored funds by submitting a memorandum to Financial Services-Payroll Services. These awards are paid as additional compensation, result in tax and retirement deductions, and are included on the employee’s W-2 form (see FIN 420–05, “Employee Postgraduate Research Stipends/Grants,” for more information).

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Employee Nonmonetary Awards

Not Exceeding $100

Employee nonmonetary awards not exceeding $100 per person (e.g., plaques, pens, clothing) may be purchased by departments on nonsponsored/nonstate agency/orgs without any provost, vice president, or vice provost (VP) approvals (coded to Advantage object/sub-object 7390 99). Due to the limited value, departments are not required to notify Financial Services-Payroll Services of such awards.

Exceeding $100

Employee nonmonetary awards exceeding $100 per person (e.g., a briefcase or software) need to be approved in advance by the provost or the applicable VP (purchased on nonsponsored/nonstate agency/orgs and coded to Advantage object/sub-object 7390 99). Additionally, the originating department needs to notify Financial Services-Payroll Services area that a nonmonetary award has been provided to the employee. Furthermore, the department must provide a copy of the documentation substantiating the value of the award to their payroll rep so that the item can be taxed and included as wages on the individual’s W-2 form.

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Employee Monetary Awards

Employee monetary awards, including cash equivalents, such as gift certificates and gift cards in excess of $25, must be processed through the payroll system as additional employee compensation so that the appropriate income and employment tax withholding and reporting may occur. Additionally, employee monetary awards exceeding $1,000 per person need to be approved in advance by the provost or the applicable VP. Employee monetary awards in the form of cash equivalents in excess of $25 must be reported to payroll.

To initiate award payments, departments need to submit an on-line Payroll Action Request (PAR) with supporting documentation to Financial Services-Payroll Services, specifying the recipient and purpose of the award as well as whether the award:

1. should be added to the employee’s next regularly scheduled paycheck

   or

2. processed as a separate hand-drawn check.

The requests also need to specify whether the award amount is:

1. a gross amount, in which case the recipient will receive a lower cash payment amount as a result of tax and retirement withholdings

   or

2. a net amount, in which case Financial Services-Payroll Services will calculate what the gross award amount needs to be, taking into account applicable withholdings, so that the recipient will receive a cash payment for the net amount specified by the department. The department, however, will be charged for the gross award amount.

Cross-References

For information on processing postgraduate research stipends/grants, see FIN 420–05, “Employee Postgraduate Research Stipends/Grants.”

For information on student awards, see FIN 422–01, “Student Financial Support.”

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