Gift Cards & Non-Cash Items

CFAES Resource Guide:
Gift Cards and Non-Cash Items

The IRS classifies both “gift cards” and “non-cash items” as taxable benefits (“income”).  Thus, distribution of these items presents substantial risk and audit exposure for the University, college, and recipient.  Duty of care must be applied.  Additionally, processes to report taxable income, at times, can be complex tasks that must be completed by departments.   

  • Gift Cards:  IRS categorizes gift cards as “cash” or “cash transaction” (income).  Gift card value is reportable regardless of dollar amount. 
  • Non-Cash Items: IRS categorizes non-cash items as a taxable benefit (income) regardless of item and/or cost. Non-cash items provided to employees throughout a calendar year of cumulatively totaled. If an employee exceeds $100 in non-cash value it is reported to the IRS as taxable income.   
    • Uniforms:  If apparel being provided to employees as a “uniform” then departments must consult with University Tax Compliance to determine if the clothing item and cost is/isn’t taxable and document the Tax Compliance response accordingly.
  • Conditional Circumstances:  Majority of circumstances require IRS taxable reporting.  However, some specific circumstances may qualify for an exemption if deemed “unreasonable administrative burden”.  Internal dialogue with CFAES Central Finance needed to identify these circumstances.     
  • Gift Cards to Businesses/Organizations:  Gift Cards are prohibited to be issued to businesses/organizations in lieu of payment for goods or services.  All University goods or services must be purchased only with University-initiated payment methods.      
  • Gift Cards as Future Payment Method:  Gift cards are prohibited to be purchased with intent to use as “payment” for future business expenses (e.g. Walmart gift card to buy small-dollar items needed in office).  Only University payment methods must be presented at time of purchase.


CFAES GUIDING PRINCIPLES

  • Department Accountability, Responsibility and Fiscal Stewardship: 
    • Duty of care and diligence similar to cash-handling and protection of University property/assets (see “Attestation” statement below).   
    • Gathering required information from recipients and complete all processes related to IRS reporting requirements. 
    • Inform recipients of potential income tax implications. 
    • Manage and maintain within the department all documentation related to the purchase, distribution, inventory control and IRS reporting of both gift cards and non-cash items.  This documentation may be required for compliance and audit reviews.
    • Respond to all related internal and external audit inquiries.       

Department Attestation:  The below statement to be added to all transactions when purchasing gift cards and non-cash items.

Department assumes responsibility to facilitate any required IRS taxable income reporting for employees, students, and/or non-University recipients.  Records and documentation will be maintained within the department.  Additionally, any items not immediately distributed will be appropriately tracked and inventoried as a control measure.”  

  • Revisit Practices:  It’s recommended distribution of taxable benefits be evaluated to determine if managing the complex reporting process and acceptance of risk is warranted for the “Business Purpose”.  Reducing frequency may result is budgetary and administrative savings.  
  • Potential Alternatives:  Departments may consider issuing check payment in lieu of issuing a taxable benefit.  The University’s check issuance process automatically initiates the appropriate IRS reporting requirements.  Thus, less administrative work and risk for department.        
    • Employee Payment:One-Time Payment” to request funds be added to employee’s paycheck.
    • Non-Employee: “Miscellaneous Payment” (MP) will automatically initiate a1099 using individual’s “Payee” status.   
       

Recipient

Tax Reporting

Department Tasks

Employees

Employees, including employed students, receiving any taxable benefit represents the highest level of risk for the University and department.    All gift cards and non-cash items must be reported.  No exceptions. 

Managers must submit a “One-Time Payment” in Workday for value of gift card or non-cash item for each employee receiving the benefit.  Add “Attestation” statement added to all transactions for the purchase of gift cards and/or non-cash items.

Non-Employee 

Gift Card: 

Due to the IRS categorization of gift cards being equivalent of “cash transaction” the distribution to non-employees represents a high-level of risk for University and department.  All gift cards must be reported.  No exceptions. 

Gather completed “Supplier Maintenance” paperwork from recipients and contact the CFAES Service Center for guidance on requesting a 1099 reporting adjustment.        

Non-Cash Item: 

Circumstance for distributing non-cash items to non-employees may require internal dialogue with CFAES Central Finance to determine best practice and protocol. 

To be determined after internal dialogue.  May be same as above for gift cards.

Students

(non-employee)

Consult with University “Student Financial Aid Office” for most current guidance.  A student’s financial aid status can be impacted by distribution of gift cards and/or non-cash items.

Research Participants

At times, research participants are provided a level of latitude from IRS reporting.  Consult with CFAES Central Finance for guidance about specific circumstances.  OSP established practices can be applied as a framework.