SECTION OVERVIEW AND POLICIES
The purpose of this section is to outline the issues Business Unit personnel should be aware of in planning for employee award programs and the requirements of the Office of the State Comptroller (OSC) for approving payment for these types of programs.
This section addresses Cash and Non-Cash awards associated with all merit award programs including longevity awards, performance awards, recognition awards and achievement awards. In addition to these guidelines, individual award programs may have additional program-specific requirements or limitations. In planning or implementing each type of program, Business Units should also refer to any specific guidelines issued regarding the programs such as Budget Bulletins or Agency Implementation Plans.
Process and Transaction Preparation:
INTERNAL REVENUE CODE
Awards presented to employees under an achievement award program may be taxable to the employee under the Internal Revenue Code. The Internal Revenue Code specifies certain conditions associated with award programs which, if satisfied, allow the employer to exclude the award from the recipient’s income. To the extent the award program adheres to the Internal Revenue Code requirements, the award is not taxable to the employee.
There are qualified plan awards and non-qualified plan awards. A qualified plan award is an achievement award given to an employee as part of an established, written plan or program which does not discriminate in favor of highly compensated employees (as defined in IRS Publication 15-B) as to eligibility or benefit. A non-qualified plan award is one that deviates from the qualified plan award.
In general the following conditions apply for awards to be excluded from an employee’s income:
- Awards include tangible, personal property with a value of up to:
- $1,600 for qualified plan awards, or
- $400 for non-qualified plan awards.
- All achievement awards must be part of a meaningful presentation under conditions that do not create a significant likelihood of disguised pay.
- Length-of-service achievement awards, other than very small value awards such as plain paper certificates, must be for:
- no fewer than five years of service, and
- service in intervals of no less than five years.
- Safety achievement awards will not qualify if they are given to managers or to administrative, clerical or professional staff, or if they are also given to more than ten percent of other employees in the same tax year.
Awards that are not excluded from an employee’s income include:
- The value of intangible awards from a qualified plan award that exceeds the $1,600 or $400, as described above.
- Awards of any value for cash and cash equivalents, including gift cards or certificates or other intangible property such as mass transit cards, vacations, meals, lodging, and tickets to theater or sporting events.
NEW YORK STATE LAW
Section 135 of the Civil Service Law prohibits employees from receiving extra compensation except for overtime payments unless statutorily authorized.
The Office of the State Comptroller will approve reasonable expenses related to award programs. Appropriate expenses include both the cost of the awards presented and the costs of the award presentation ceremonies. In addition, reasonable lunch or dinner expenses, included as a part of the presentation, will be allowed for the honored employees and a guest of their choice and appropriate agency officials. Business Units may use the meal per diem allowances for a geographic region to guide their determination of price reasonableness. To the extent award programs adhere to the requirements of the Internal Revenue Code, the awards are not taxable to the employee.
Awards that are not excludable must be included as taxable income to the recipient. The value of an award that does not meet the exclusion requirements of the Internal Revenue Code must be reported as taxable income to the recipient on the PayServ system. In addition, cash and cash-equivalent awards (see listing above) must be reported as income to the recipient. In accordance with NYS law, awards which do not meet the tangible personal property standard may only be awarded in programs specifically authorized in statute. Business units should contact their payroll officer for proper reporting of a taxable award.
Example – A Business Unit plans a service award program where they will present a desk clock valued at $150 to an honoree with 40 years of service. They plan on presenting the award at a ceremony where the honoree and a guest of their choice will receive meals valued at $19 per plate.
Result - All costs associated with the awards and the award ceremony are allowable and may be excluded from the employee’s income.
Example – A Business Unit wants to give an employee a $50 gift certificate from the M/C non-cash award program.
Result – The cost of the award is allowable since gift certificates are allowable under the M/C non-cash award program; however, income of $50 must be reported for the employee on the PayServ system since a gift certificate is a cash equivalent and does not meet the tangible property standard.
Example - During the calendar year, an employee receives a wall plaque valued at $900 from the employee recognition program, a watch valued at $500 from a service award program, and a clock valued at $300 from a divisional safety award program. All three awards were qualified program awards.
Result – The cost of the awards are allowable; however, income of $100 must be reported for the employee on the PayServ system since the value of all awards from qualified award programs exceeds the $1,600 limit by $100.
Guide to Financial Operations