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trophy Employee Awards trophy

Gift cards, cash bonuses, and cash awards/prizes received from an employer are taxable and should be included in income and reported on the recipient’s W–2 in the year paid. 

Normally, awards to employees are paid from Accounts Payable and charged to Account 51593.  The recipient is given a check or gift card for the total amount of the award at the time the award is presented.  At this time, no taxes have been withheld from the payment.

Award payments are reported to Payroll by University Accounting and included in the employee's paycheck. Taxes on the award payment will be deducted the month that the additional pay is reported to Payroll.  

For withholding tax purposes, awards are treated as supplemental wages by both the IRS and the State of North Carolina.  Per IRS guidelines, Federal Tax is withheld at a flat rate of 25%, while the North Carolina Department of Revenue specifies that withholding on supplemental wages be taxed at a flat rate of 6%.  In addition, Old Age Survivors and Dependent’s Insurance (OASDI) and Health Insurance (HI) are withheld at rates of 6.2% and 1.45% respectively. 

 

Summary of Withholding Percentages

Federal Income Tax Withholding

25 %

State Income Tax Withholding  

6 %

OASDI – Employee’s Portion

6.2 %

HI Employee’s Portion

1.45 %

 

  

The department which paid the award will be assessed the employer’s matching portion of the OASDI and HI tax.  These amounts will be the same as what was withheld from the employee’s check for the award.

Example:

Joe Employee’s monthly net payroll check always totals $1,575.75.  He was awarded a $500 award for his extra effort. An Accounts Payable check was presented to him on February 15, 2005. University Accounting then identified the payment during their monthly employee award analysis process.  As a result of the award, information detailing the award payment was given to University Payroll.  In his March regular paycheck, Mr. Employee saw the following items related to his award:

  • Increase in Gross pay for the month $500.00

  • Increase in OASDI W/H  $31.00

  • Increase in HI W/H  $7.25

  • Increase in State W/H  $30

  • Increase in Federal W/H  $125
As a result of the tax on the award payment, Mr. Employee’s net check will be $1,382.50 ($1,575.75 less $193.25 – taxes on award).The employer’s portion of the OASDI and HI tax will appear on the department’s project in March.  These taxes will be shows as:
  • Employer portion of OASDI  $31.00

  • Employer portion of HI $7.25