This Bulletin addresses 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, agencies should also refer to any specific guidelines issued regarding the programs such as Budget Bulletins or Agency Implementation Plans.

Internal Revenue Code

Awards presented to employees under an achievement award programs may be taxable to the employee under the US Internal Revenue Code. The Internal Revenue Code specifies certain conditions associated with award programs which allow the recipient to exclude that award from income. To the extent award programs adhere to the Internal Revenue Code, the awards are not taxable to the employee. In general the following conditions apply:

• The term "qualified plan award" means an established written program which does not discriminate in favor of highly compensated employees as to eligibility or benefits.
  
• The award must be tangible personal property (other than cash, gift certificates, or other cash equivalent items) in order to be excluded from taxable income.
  
• The value of all awards received by an employee from all qualified plan award programs can not exceed $1,600 in a year to be excluded from income. Any amount above $1,600 must be included in the recipients taxable income.
  
• The Civil Service Commission establishes regulations regarding merit award programs. Agencies must adhere to these regulations is establishing and implementing award programs. Adherence to these regulations also ensures that all programs are qualified plans under the Internal Revenue Code. The value of all awards received by an employee from award programs which are not qualified plans can not exceed $400 in a year to be excluded from income. Any amount above $400 must be included in the recipients taxable income.
  
• Length-of-service awards must be for no fewer than five years of service nor for service in fewer than five year intervals.

New York State Law

Section 135 of the Civil Service Law prohibits employees from receiving extra compensation except for overtime payments unless statutorily authorized.

Sections 145 and 146 of the Civil Service Law provides the State Civil Service Commission with the power to establish regulations regarding merit award programs and the power to determine the nature and extent of the merit awards to be made under such programs.

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. Agencies may use the meal per diem allowances for a geographic region to guide their determination of reasonableness. To the extent award programs adhere to the Internal Revenue Code, these award programs are not taxable to the employee.

Non-Cash Awards which do not meet the requirements of the Internal Revenue Code must be included as taxable income to the recipient. The value of the award must be reported on the PaySR system. In particular, non-cash awards which do not meet the tangible personal property standard including such items as gift certificates, subway tokens, or other cash equivalent items, must be reported as income to the recipient. However 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. Awards which cause individual employees to exceed the maximum annual allowable limit must also be included in taxable income. All award programs must be administered in accordance with regulations promulgated by the Civil Service Commission.

Example - An agency plans a service award program where they will present the honoree with 40 years of service a desk clock valued at $150. They plan on presenting these awards at a ceremony where the honoree, and a guest of their choice, will receive a meal valued at $19 per plate.

Result - All costs associated with the awards and the award ceremony are allowable.

Example - An agency wants to give an employee a $50 gift certificate from the MC non-cash award program.

Result - Award is allowable since gift certificates are allowable under the MC Non-cash award program, however income of $50 must be reported for employee on PaySR system since gift certificates do not meet the tangible property standard.

Example - During the calendar year an employee receives wall plaque valued at $900 from the agency 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.

Result - Awards are allowable, however income of $200 must be reported for employee on PaySR system since the value of all awards exceed the $1,600 limit by $200.

 

If you have any questions regarding this bulletin, please contact:

Direct any questions regarding how to process taxable payroll transactions, to your OSC agency Payroll Audit Representative.