Purchase and Distribution of Gift and Bank Cards
What University policies govern the purchase and distribution of gift and bank cards?
Can gift cards be purchased using a ProCard?
No, gift and bank cards should be purchased through the Accounts Payable or Treasury Management processes. Gift and bank cards purchases are a restricted purchase of the ProCard.
How do I handle gift and bank cards distributed to employees?
- Employees as Research Study Participants:
Employees who participate in research studies are treated the same as non-employees and are subject to all of the reporting requirements to which non-employees are subject, including being required to complete a form W-9. - Employees receiving gifts or awards:
Employees who receive gift or bank cards as an award or gift will have the amount of the gift card added to their form W-2 for all amounts. A “Non-cash compensation” form should be completed by the department and forwarded to the Controller’s Office at the time the gift card purchase is requested.
Do I need to collect W-9s for all recipients of gift and bank cards?
Forms W-9 need to be collected for all non-employees to whom a gift or bank card has been distributed by the University.
When will a recipient receive a form 1099?
Non-employee gift and bank card recipients receive a form 1099 from the University when all non-employee payments from the University are equal or greater than $600 for the calendar year. This includes employees who receive non-employee compensation for their participation in research studies that is equal to greater than $600 in a calendar year.
Why do I need to collect a form W-9 from non-employee recipients that are receiving less than $600 in bank and gift cards?
- A completed and signed form W-9 provides a measure of assurance that an individual is authorized to receive compensation.
- A completed and signed form W-9 provides a record of account to assist in the internal auditing of gift and bank card distributions.
- A completed and signed form W-9 provides documentation that may be relied upon by the IRS during an examination to confirm that the University appropriately prepared forms 1099 when applicable.
- A completed and signed form W-9 provides an official name of record (SSN) for the recipient in order for the Controller’s Office to determine if multiple departments are distributing gift or bank cards to the same individual and if in total this individual received compensation that exceeds the $600 threshold causing the distributions to be reportable to the IRS.
Collecting Forms W-9 is an administrative burden. Are there any exceptions?
- Tangible gifts with values under $100 can be given without any reporting to the Controller’s Office. Other than the value there is no restriction on the type of gift and they may include diapers, a box of groceries, personal hygiene products, etc.
- The Internal Revenue Code allows for the exclusion from compensation a one-time “business gift” to an individual in an amount up to $25 (IRC 1§102, IRC §274(b)).
While this exception would only apply to research study participants there is no documentation to confirm that the application of this exclusion as applied to research study participants will be allowed by the Internal Revenue Service. Departments should use this exception sparingly and with full knowledge that these payments may be subject to scrutiny from the Internal Revenue Service who at their discretion could re-characterize these “gifts” as compensation for services. All fines and penalties assessed upon examination by the Internal Revenue Service, the Commonwealth of Kentucky or Louisville Metro Revenue Commission will be the responsibility of the department.
The date, amount and name of the recipient of the gift card or money must be documented and be submitted to the Controller’s Office with a signature from the recipient verifying two specific items.
- The individual received the money/gift card.
- The individual has not received any other form of compensation from any other unit of the University during the calendar year.
Please contact the Tax Department (852-3337) for additional assistance in applying this exception.
I have already handed out the cards and failed to request a form W-9. Do I need to find these individuals and have them fill out and return a form W-9?
The Controller’s Office will be monitoring the distribution of gift and bank cards on a quarterly basis and may request at their discretion additional follow-up to track down gift and bank card recipients to acquire forms W-9.
Will I be notified by the Controller’s Office for failing to submit forms W-9 to the Controller’s Office?
The Controller’s Office is tracking and monitoring the purchase of gift and bank cards and will notify all departments that do not voluntarily forward original forms W-9 to the tax department.
Why now? In the past no one has requested any information regarding gift cards?
The Rules and Regulations of the IRS that govern the distribution of gift and bank cards have been in place for some time but the focus of the IRS on colleges and universities as well as the compensation of non-employees has significantly increased.
How much compensation is distributed by the University in gift and bank cards?
Our efforts to obtain statistics regarding the distribution of gift and bank cards is just beginning, but extrapolated numbers would suggest that the University will distribute in excess of 6,000 cards with an average value of $30 during the current calendar year.
What Internal Revenue Code and Regulations govern the distribution of gift and bank cards?
Only specifically excluded items can be excluded from gross income. Internal Revenue Code Section 132 (a) lists the fringe benefits that can be excluded.
The IRS has given additional guidance with Treasury Regulation,§1.132-6 (c), specifically addressing gift cards as a form of compensation not excludable under section 132 of the Internal Revenue Code.
The IRS has further reinforced this position with Technical Advice Memorandum 200437030.
