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Income Tax on Awards and Prizes

This policy provides guidance for recognizing Trinity University employees and students through the giving of prizes and awards for academic performance or employee service.  Payments are made through different Trinity University offices dependent on whether the recipient is a student or employee and dependent on the final distribution of the check. All guidelines are in accordance with IRS regulations and university policy.

Terminology:

Prizes are given to students who have submitted entries to a judged competition. For example, the best short story, essay, music or poster competition.

Awards are given to employees and students when no formal entry or submission has been made by the employee or student to win the award.  Awards may  be given to employees only for meritorious performance reasons connected with employment.  For example, McKinley Award, Fern Malsbury Award, and Student Service Awards.

Employee is an individual receiving compensation for services provided full-time or part-time, including casual employees, and student employees.

Student Awards - Not Connected to Employment:

If not connected to employment, awards and prizes to students in the form of cash, check and/or gift cards are related to academic achievement or performance and are considered financial aid. In many cases, the award or prize  will be processed through the Financial Aid Office, recorded on the student’s account, and reflected on the student’s bill.  In cases where a check or gift card is to be handed to the student at a ceremony, the award will be processed by the Accounts Payable Office.

However, in all cases, the Financial Aid Office will be informed of the amount and will determine the impact, if any, on the student’s overall financial aid package. A listing of the students receiving  prizes or awards in the form of cash, check and/or gift card should be attached to the DPO or other document for reimbursement and reporting purposes.

Students who are nonresident aliens (as defined by the IRS for tax purposes) and who receive awards or prizes that are in excess of tuition, books, and required fees and equipment  will be taxed at the rate of 14% and reported on a Form 1042-S by the University.

Awards Connected to Employment:

Awards to employees are considered wages subject to social security, medicare and federal withholding, and reported on Form W-2. 

Employee Achievement Awards 

Length of Service Awards 

Length of service awards may qualify as a non-taxable benefit provided: 

  • The employee has at least five years of service with the University 
  • The employee has not received a length of service award within the last five years 
  • The awards are limited to $400 per employee per year 
  • The awards are presented as part of a meaningful presentation 
  • The awards must not be disguised compensation, i.e. an award that cost the employer much less than its fair market value

Should the employee receive a length of service award or gift that exceeds $400, the excess shall be reported to Payroll and included as taxable wages on the employee's From W-2. 

Please refer to the matrix below for further guidance. If you have questions please call extension 8002 for Andrea Spanley, Manager of Disbursements or Brad Melton, Controller. 

Trinity Student (not including non-residential alien) 
Recognizes academic accomplishments as a student (award or prize)
Processed/ Paid By: *Accounts Payable or Financial Aid 
IRS Reporting: 1098-T 
Tax Consequence: Taxable if amount received for the calendar year exceeds tuition & required fees, books, and required equipment

Trinity Student (non-residential alien) 
Recognizes academic accomplishments as a student (award or prize)
Processed/ Paid By: *Accounts Payable or Financial Aid 
IRS Reporting: 1042-S, if applicable
Tax Consequence: Qualified amounts = nontaxable; Non qualified amounts = 14% rate

Trinity Employee 
Recognizes service as an employee (including student workers) 
Processed/ Paid By: Payroll 
IRS Reporting: W-2 
Tax Consequence: Federal Income Tax withheld when award is paid 

Trinity Employee
Length of Service Award
Processed/ Paid By: No action if award is $400 or less **
IRS Reporting: No Reporting **
Tax Consequences: No Tax Consequence **

* The Financial Aid Office or the Account Payable Office will process the award or prize dependent upon final distribution of the check, if applicable (i.e. whether the check is to be handed to the student by the department or simply applied to their student account). In any case, the Financial Aid Office will be made aware of the award or prize amount and will determine the impact, if any, on the student's financial aid package. 

** Other criteria that apply in order to be a nontaxable length or service award includes: 

  • The employee has at least five years of service with the University 
  • The employee has not received a length of service award within the last five years 
  • The awards are presented as part of a meaningful presentation 
  • The awards must not be disguised compensation, i.e. an award that cost the employer much less than its fair market value.