Gifts, prizes and awards
The university must comply with IRS regulations for treatment of gifts, prizes and awards.
Prizes and awards are typically cash, gift cards, or other tangible personal property given for various reasons.
Cash prizes and awards are paid through accounts payable. Gift cards and non cash prizes and awards require the student to provide information so that the university can comply with the IRS reporting requirements. Students will need to provide this information and sign to acknowledge the tax consequences prior to receiving the gift card or non-cash item. Awards paid through accounts payable do not require a gift reporting form however the department making the award or accounts payable may request more information in order to comply with the tax reporting requirements.
Tax Consequences
In almost all circumstances, gifts, prizes and awards are included in the recipient's gross income. The student is ultimately responsible for proper inclusion on the individual income tax return, regardless of whether the gift prize or award was required to be reported to the IRS.
Gifts, prizes and awards related to employment
Gifts, prizes and awards related to service as an employee of the university are processed through the payroll system with the appropriate federal, state, city and Medicare tax withheld. If the gift, prize or award is a gift card or non-cash item, the tax withholdings will reduce the student employee's regular pay.
Gifts, prizes and awards not related to employment
Gifts, prizes and awards that are not related to service as an employee may be included in Form 1099 or Form 1042-S. The Form 1099 reporting rules apply to US Citizen/Permanent Resident/Resident Aliens. The 1042-S reporting rules apply to students who are considered Nonresident Alien for tax purposes. Because the IRS requires 30% withholding on payments to individuals who are considered Nonresident Aliens, anyone who is not a US citizen is considered a Nonresident Alien unless documentation is provided to show permanent residency or resident alien status.
Form 1099 is required if the total amount received from the university is $600 or more in any one calendar year. The student will receive the 1099 by January 31 for payments, including gift cards or non-cash items, made in the prior calendar year. If the amount received is less than $600, then the student will not receive a tax form but will be required to self-report all amounts received from the university on his or her tax return.
If a student who is considered a nonresident alien receives a gift card or non-cash item, the 30% withholding tax will be charged to the student account. Form 1042-S will be issued by March 15 for gift cards or non-cash items given in the prior calendar year.