October 12, 2001
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
swilson@mail.dbf.state.fl.us.
