COMPTROLLER'S MEMORANDUM NO. 02 (2001-02)
SUBJECT: USE OF THE PURCHASING CARD AND TAXABILITY GUIDELINES FOR NONCASH SERVICE AWARDS
The Purchasing Card (PCard) may be used for the purchase of certificates, pins, plaques, and other tokens of recognition for state employee noncash awards. These noncash awards must be administered in compliance with the agency's established Awards Program. Awards determined to be taxable must be reported to the Bureau of State Payrolls for reporting and remitting to the Internal Revenue Service.
Noncash Service Awards
As stated in Comptroller Memorandum No. 5 (2000-2001), the amended Section 110.1245, F.S., and Section 240.2111, F.S., authorizes state agencies, the judicial branch, and the universities to establish service awards programs. The statutes provide for noncash awards of certificates, pins, plaques, letters of commendation, and other tokens of recognition. The cost of each noncash award may not exceed the amounts authorized by Florida Statutes.
Special Tax Rules for Noncash Awards
Internal Revenue Service regulations provide that awards of noncash prizes or merchandise to employees for meritorious performance, productivity improvements, or similar reasons, are generally considered taxable wages, with two specific exceptions:
1. Length-of-Service: Noncash awards of a tangible nature, such as merchandise (e.g. watch, silver platter, crystal vase), may be eligible for exclusion from income tax, up to specified dollar-value limits. Cash, or awards that can be converted into cash, may not be excluded from income. Length of service awards may not be granted for fewer than five years of service, or more frequently than every five years. Retirement gifts constitute length of service awards and are subject to the same requirements for income exclusion as other employee noncash awards.
2. De Minimis Fringe Benefit per Internal Revenue Code, Section 132(e)(1): A noncash prize, gift, or award may be excludable from income, as a de minimis fringe benefit. The Internal Revenue Service defines a de minimis fringe as “any property or service, the value of which is (after taking into account the frequency with which similar fringes are provided by the employer to the employer's employees) so small as to make accounting for it unreasonable, or administratively impractical”. In other words, if it is reasonable and practical to track the noncash award, it is taxable.
The frequency at which such awards are made is a key factor in determining whether the de minimis rule applies. For example, a gold watch, given by an employer to each employee who completes 25 years of service, could be excludable as a de minimis fringe. However, if the same watch were given without requiring a lengthy period of service, the de minimis exclusion would not apply.
Cash awards and gift certificates redeemable for cash are not excludable under the de minimis rules.
Excludible Noncash Awards Agencies may utilize the PCard to purchase Noncash Service Awards, without including the value of such items in the employee's wages. Object Code 498000 should be used for nontaxable employee awards. To be excludable, the awards must meet the length-of-service, retirement, or de minimis fringe benefit rules outlined above, and the following conditions:
1. The agency must establish a written awards program and the agency's awards must be given in accordance with their established program.
2. The award must be given as part of a meaningful presentation.
3. The award must be noncash in nature. The awards may include certificates, pins, plaques, letters of commendation, or other tokens of recognition. Other tokens of recognition may include merchandise purchased in bulk, including phone cards and gift certificates. Gift certificates, phone cards, etc. must not be redeemable for cash.
4. Documentation must be maintained by each agency for any nontaxable award in excess of $25.00.
Taxable Noncash Awards
Noncash awards that do not qualify to be excluded as length-of-service, retirement, or de minimis fringe benefits, are taxable income to the employee. Object Code 498100 has been established for taxable employee awards. Savings bonds are always taxable. The PCard may be used for these purchases; however, the taxable value must be reported to the Bureau of State Payrolls, using the On-Line Non-Cash Adjustment System. Refer to Payroll Preparation Manual, Volume V, Section 8. Taxable noncash awards are subject to gross up and the payment of all withholding and FICA taxes by the agency.
The Division of Accounting and Auditing will post-audit, test, and monitor the usage of object codes 498000 and 498100. The Agency's PCard Model Plan should be updated and provide accountability controls for award transactions.
Additional information concerning awards and de minimis benefits may be found in Internal Revenue Service Publication 15-B, Employer's Tax Guide to Fringe Benefits, and Publication 535, Business Expenses. These publications may be obtained by calling the IRS at 1-800-829-3676, or e-mail www.irs.gov.
If you have any questions regarding this memorandum, please contact Steve Wilson at (850) 410-9302, Suncom 210-9302, or email firstname.lastname@example.org.