Taxation of Fringe Benefits
Summary
This provides guidance regarding the tax implications of gifts, prizes, and awards made to employees so that: 1) departmental personnel can provide proper communication to the employee at the time of receipt; and 2) the university complies with federal and state tax laws and regulations. Any questions concerning the taxability of a gift, prize, or award should be reviewed with the Tax Department (taxdept@case.edu) prior to approving or processing the transaction.
Regulations & Tax Reporting
Payments made from ÐÇ¿Õ´«Ã½ funds, or items of value given to employees, are considered compensation subject to federal, state, and employment tax withholding, and reported on Form W-2 unless a specific exemption applies.
Once the taxable fringe benefit has been processed by Payroll on an employee’s paycheck, the taxable amount will appear on the employee’s Paystub in the Earnings Section as a Taxable Benefit.
If a taxable fringe benefit is reported after an employee has received their final paycheck of the calendar year, a manual adjustment may be made directly to the employee’s Form W-2 to reflect the amount.
Fringe Benefit Taxation -Specific Areas
Some of the fringe benefits commonly seen at ÐÇ¿Õ´«Ã½ are discussed below. The following is not an all-inclusive list and does not address whether or not an employee is eligible to receive a particular fringe benefit. Some of the benefits listed may be campus-wide, while others may be specific to certain departments.
Gifts, Prizes and Awards
I. Cash and Cash Equivalents
Cash gifts, prizes, or awards, including gift certificates and gift cards (cash equivalents), are considered supplemental wages and are always reportable as taxable compensation, regardless of the dollar amount and beginning with the first dollar. Gifts, prizes, or awards of cash and cash equivalents must be processed through Payroll and are subject to federal, state, and employment tax withholding. The gift, prize, or award must also be included in the employee’s year-end Form W-2, Wage and Tax Statement.
II. Non-cash Valued at $100 or Less
A gift, prize, or award may be considered a de minimis fringe benefit and not taxable compensation to the employee if: 1) it is a non-cash gift of property such as food, flowers, clothing, etc.; 2) it is valued at $100 or less; and 3) it is given only on an occasional basis.
III. Non-cash Valued at More than $100
A non-cash gift, prize, or award valued at more than $100 is taxable beginning with the first dollar and must be processed through Payroll. Such gifts, prizes, and awards are reportable as taxable compensation to the employee, subject to appropriate federal, state, and employment tax withholding, and must be included in the employee’s year-end Form W-2, Wage, and Tax Statement.
Exception to the General Rule-Employee Achievement Awards
Special rules apply to non-cash awards based on an employee’s safety achievement or length of service with ÐÇ¿Õ´«Ã½. A safety or length of service award may be excluded from the employee’s income if specific criteria are met pertaining to the form and timing of the award, its dollar value, and its method of presentation. Departments or schools should consult the Tax Department (taxdept@case.eduu) prior to making such awards.
Definitions
Award: A cash or non-cash item given to show thanks, support, goodwill, or recognition of an outstanding accomplishment. Examples include achievement in teaching, research, retirement, or other job performance related activity. A bonus could be one type of an award.
Gift: A cash or non-cash item given as a gesture of goodwill or appreciation, or in recognition of, or in connection with a holiday season, or some other purpose not specifically related to regular job performance. Examples may include holiday or birthday gifts.
Prize: A cash or non-cash item given at random or as a result of chance, not directly related to job performance. Examples include random door prizes and raffles at ÐÇ¿Õ´«Ã½ sponsored events.
Non-Cash Item: A gift of tangible personal property such as a plaque, electronic equipment, T-shirts, flowers, etc. Tangible personal property doesn’t include cash, cash equivalents, gift cards, gift coupons, certain gift certificates, tickets to theater or sporting events, vacations, meals, lodging, stocks, bonds, securities, and other similar items.
De Minimis: A non-cash gift or award that is so small that accounting for it would be unreasonable or administratively impractical. De minimis gifts, prizes, or awards may only be provided on an occasional basis and must be small in amount. Only non-cash gifts of property valued up to $100 are considered de minimis. Cash awards, gift cards, and gift certificates are never considered de minimis.
Relocation/Moving Expenses
The Tax Cuts and Jobs Act eliminated the non-taxability of qualified moving expenses. Currently, all moving expenses are now taxable to employees if reimbursed or paid on their behalf. The TCJA also eliminated the deduction (on a tax return) for qualified moving expenses effective January 1, 2018. No deductions, whether previously deductible or not, can be made for moving expenses.
If a department wishes to pay an amount towards relocation costs for a new hire, this will be paid as a taxable moving benefit. No taxes will be withheld at the time of issuance; however, the applicable taxes will be withheld from one or more paycheck(s) once the employee is active on Payroll.
Forms
Helpful Links
IRS Publication 5137 ()
Publication 15-B ()