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RATIONALE:
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Indiana University Policy
FIN-ACC-640, Drawings, Games and Prizes
outlines the acceptable parameters related to giveaways and prizes. Once the appropriateness of the prize is approved/reviewed, then the possible taxability of the prize needs to be determined.
The value of a prize is generally considered taxable income to the recipient and may require the University to report the value of the prize to federal and state revenue agencies.
NOTE: Indiana University’s tax reporting obligations will differ depending on the individual receiving the prize and various other factors. In certain cases, departments may be liable for taxes that cannot be withheld. In addition, participants should be notified by the initiating department/unit of the potential tax consequences of accepting the prize
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PROCEDURES:
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STEP 1: Determine value of prize/giveaway
less than $600:
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Communicate with recipient that the value of the prize should be self-reported. The following language is recommended for notifying recipients:
Please note that awards over $600 will be reported on the IRS Form 1099-MISC by Indiana University. The IRS has stipulated that amounts less than $600 are required to be self-reported by the recipient on their personal tax return. Please consult with your personal tax advisor for any questions or concerns.
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Any amount of cash or cash equivalents (including gift cards) given will need to be reported to UCO University Tax Services according to the procedures in the $600 or greater section.
$600 or greater:
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Completion of the
Prize Tax Data Collection Form
is required.
- An
IRS
Form W-9 or W-8BEN
must be collected to issue an IRS Form 1099-MISC to the recipient.
- The above forms must be submitted to UCO University Tax Services
within 30 days
of the prize distribution, via Fax (due to SSN on Form W-9/W-8) at (812) 856-4861.
De Minimis:
Indiana University considers the following amounts/scenarios to be de minimis, thus, do not need to be reported by IU for tax purposes:
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Tangible personal property given to employees: $100 or less
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Tangible personal property, cash, and cash equivalents (including gift cards) paid to students that go through Financial Aid
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Tangible personal property in a drawing/contest open to anyone: <$600
Even though IU may not have a reporting responsibility, the recipient may still have a self-reporting obligation on their tax return.
Please see Tax Memo 9.55 for details on what other Universities in the Big 10 conference consider to be de minimis.
STEP 2: Review Further considerations
Is the winner an IU employee, IU student or other?
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If an
employee or student employee
with a 10-digit University identification number, only the Prize Tax Data Collection Form needs to be submitted.
- If a
student
with a 10-digit University identification number, the department must collect the Prize Tax Data Collection Form and either an IRS Form W-9, or in the case of a non U.S. resident, IRS Form W-8BEN. Please refer to the
Student Payment Guidelines
for more details.
- If
“other”
is without a 10-digit University identification number, the department must collect the Prize Tax Data Collection Form and either an IRS Form W-9, or in the case of a non U.S. resident, IRS Form W-8BEN.
Is the prize going to an International Employee, Student or Visitor?
- IRS regulations require that an international individual receiving a prize/award are subject to 30% federal tax withholding on the payment. Currently, IU does not offer tax treaty provisions to exempt a prize/award from the 30% tax withholding. Hence, when IU makes a payment through BUY.IU for a prize/award to an international recipient, IU will withhold 30% from the prize/award amount and remit it to the IRS. The balance will be issued directly to the individual. At the end of the calendar year, an appropriate Form 1042-S tax reporting form will be prepared by IU and sent to the individual.
- If the prize is not issued as a BUY.IU payment, and instead as tangible personal property, then there may be tax “gross-up” tax requirements from the department. Please contact
The University Controller's Office for assistance.
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If a foreign individual “wins” a prize, then a Form W-8BEN should be collected at the time of award presentation. [This form is similar to Form W-9 that a US person for tax purposes would complete.] Form W-8BEN is used to declare an individual’s status as non-resident alien or foreign national. Form W-8BEN is typically requested by withholding agents from any foreign payee.
Is the initiating unit a student organization?
- University student organizations (USOs) and self-governing student organizations (SGSOs) have different prize reporting responsibilities. University student organizations (USOs) are part of IU and as such are required to comply with all IU Policies and to follow the appropriate guidance outlined in this TSOP.
- Student organizations whose funds are outside the University financial system (SGSOs) are not required to submit the Prize Tax Data Collection Form, since they are not part of IU. However, these organizations and the prize recipients may still be required to complete and submit tax information according to federal and state tax law and IRS policies. They may wish to seek additional financial advice. See
Student Organizations Policy STU-01
for more information.
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The Internal Revenue Service (IRS) considers gift cards, gift certificates, and stored value cards to be cash equivalents. When given to individuals, cash equivalents create the same tax implications as a distribution of cash and should be self-reported by the individual if the $600 limit is not met to require a Form 1099-MISC. Any amount of cash or cash equivalents given to individuals should be reported to UCO University Tax Services.
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DEFINITIONS:
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Contest:
A competition for a prize involving actual skill or criteria for winning that is different from a drawing based on luck, such as an academic based contest.
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Drawing:
A game of chance where the prize is awarded based on participation or attendance, such as a door prize.
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Giveaway:
Items of nominal value provided to everyone participating in or attending an event.
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Prize:
Include cash, cash-equivalents (such as gift cards), tangible personal property, and complimentary services.
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Award:
For the purpose of this SOP, an award refers to a prize from the sources mentioned in Policy FIN-ACC-640, Drawings, Games, and Prizes. It does not refer to any achievement award, safety award, or longevity award given to employees.
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Raffle:
The selling of tickets or chances to win a prize awarded through a random drawing (I.C. 4-32.2-2-26) requires a gaming license issued by the IN Department of Revenue and are strictly prohibited by IU.
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Cash Equivalents:
Cash equivalents are stored-value products such as gift certificates and gift cards. The IRS specifically defines these instruments as cash equivalents and states that their value is considered taxable income to the recipient, regardless of dollar value.
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Gift Card or Gift Certificate:
A gift card or gift certificate entitles the recipient to receive goods or services of a specified value from the issuer.
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