Gift Cards in Lieu of Payments

 Purpose

The purpose of this policy is to set forth the guidelines and procedures for the purchase and distribution of gift cards purchased with University funds ensuring compliance with IRS and the University tax withholding and reporting obligations.

Scope

The University often conducts research projects that involve the use of human subjects necessitating the need for participant payments.  Additionally, incentives, prizes and awards may be distributed to select groups of individuals that assist in campus unit initiatives.  This policy applies to all University departments and activities.

Policy

When paying participants with gift cards, project directors must ensure:

  • fiduciary responsibility for proper accounting of funds spent in the study/activity and adequate controls are in place for the distribution of the funds.
  • costs are allowable and expended in accordance with the awarded budget and sponsor terms and conditions.
  • appropriate tax treatment for payments made to the participants.

Gift cards to employees

Under the Internal Revenue Code, section 132(a)(4) regarding De Minimis Fringe Benefits, cash and cash equivalents such as gift cards and money orders are generally intended as a wage.  Gift cards to employees are discouraged.  Requests for any special type of employee recognition or human subject participant payment should be processed in payroll and reported on the individual’s Form W-2, Wage and Tax Statement regardless of the amount.  If the human subject is a nonresident alien employee, please read the section below entitled: Nonresident Aliens.

Gift cards to non-employees

Gift cards presented to non-employees may be taxable and reportable income on form 1099-misc to the recipient.  Gift cards should not be given as wages.  The university will track gift cards compensation received by such individuals.  If an individual is presented gift cards and receives other awards or payments during the calendar year totaling $600 or more, the entire amount will be reported on form 1099-misc.  The university requests a completed form W-9 from the recipient if the value of gift cards is equal to or greater than $100 as recipients (human subjects, survey participants, etc.) may participate in several studies with a cumulative value equal to or greater than $600.

In situations where the university is not required to report payments due to the cumulative value being less than $600, gift card recipients still need to report such payment(s) on his/her individual income tax return. Recipients should consult with his/her individual tax advisor regarding reporting requirements for these payments.

Human subject payments in confidential studies (non-employee)

In certain circumstances, various research studies are designed to protect the privacy of the participants/human subjects and to maintain the confidentiality of the data. If the research study has been approved to be confidential in nature, it is not necessary to identify the human subject by name or SSN. However, the total amount to any individual paid from the University within a calendar year cannot be equal to or greater than $600 (without required IRS reporting and withholdings). Please refer to Department of Research and Economic Development (DORED) for guidance on proper recordkeeping for human subjects in confidential studies

Gift cards/certificates to nonresident aliens

All awards to nonresident aliens are subject to federal tax withholding unless an income tax treaty exception applies.  In order to determine whether the gift card will be subject to tax, the Foreign National Data Form must be filled out by the recipient.  If a treaty exception does not apply, 30% federal tax withholding rules must be followed.  Gift cards given to nonresident aliens, whether or not treated as employees, are reported on form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, regardless of the amount.  To take advantage of a tax treaty, such paperwork (request for treaty benefits) must be processed before payment is made.

Instructions

  • Submit a payment request to cover the non-cash payment/incentive.  The banner identification number assigned to the vendor (used to purchase gift cards) should be provided prior to submittal.  The aggregate dollar amount of cards plus vendor’s processing fee should be the requested expense amount.  Attach the documented business purpose or project objective (from the grant, etc.) and include the list of recipients and banner identification or social security number of each individual receiving a gift card.  Include the anticipated month/year cards are to be distributed.  The receipt for purchase of gift cards and participant receipt verification must be returned to the Accounting Office after purchase from vendor.
  • Department must maintain a record of all gift cards. Records must be updated whenever cards are disbursed.
  • Unused gift cards should be receipted back into the original fund expense account.

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Updates

April 20 2015
May 16 2016 -  "participant receipt verification" included