tracie sawade, cpp. overview gross income fringe benefits (irc) taxable employer provided benefits...

Tracie Sawade, CPP

Overview

• Gross Income• Fringe Benefits (IRC)• Taxable Employer Provided Benefits• Nontaxable Fringe Benefits• Questions

Gross Income

• Gross Income– Included wages and benefits– Excluded benefits

• Income and Employment Taxes• Fair Market Value

– IFBA = FMV – (EPA + AEL)

Fringe Benefits

• Nontaxable Fringe Benefits– No-additional-cost-services– Qualified Employer Discounts– Working Condition Fringe– De Minimis Fringe– Qualified Transportation– On-Premises Athletic Facilities– Qualified Retirement Planning Services– Qualified Moving Expense Reimbursement

No-Additional Cost Services

• Regularly offered for sale to customers

• No additional cost to employer

• Current and former employees

• Available on equal terms to all (cannot be in favor of highly compensated employees)

Qualified Employee Discounts

• Discount cannot exceed gross profit %

• Cannot exceed 20% off price to customers

• Must be same line of business

• Discount available to all in employees in group

• Real Estate excluded

• Current and former employees included

Working Condition Fringe

• Employee’s use must relate to trade or business

• Business deduction on personal tax return

• Current employee, partner, director or independent contractor only

• Employer must maintain records to substantiate deductions

Working Condition Fringes

• Examples– Business use of company car/airplane– Chauffer/body guard– Dues/membership fees to professional orgs– Subscriptions to business periodicals– Job-related education– Goods used for product testing– Outplacement services

Working Condition Fringe Cont’d

• Nondiscrimination rules do not apply

• Tax preparation services are not a working condition fringe

• Club dues (for other than professional orgs) and spousal travel are excluded– Section 162 of IRC– May still qualify when substantiation is

provided

De Minimis Fringe

• Value is so small that accounting is unreasonable or impracticable

• Frequency matters

• Employee is anyone to whom the benefit is provided

• Can never, never, never be cash!– Cash is cash and cash is taxable!

De Minimis Fringe Cont’d

• Examples of De Minimis Fringe– Occasional typing of personal letters– Occasional use of copier– Occasional parties and picnics for all emp.– Occasional tickets to sporting events– Traditional holiday gifts w/ small value

• Turkeys• Candy

De Minimis Fringe Cont’d

• More Examples

• Coffee and doughnuts– Occasional use of company telephones– Occasional meals or cab fare for late workers– Cab fares for working other than normal shift

De Minimis Fringe Cont’d

• Rules to remember– No specific dollar minimum– Gift certificates and gift cards are not

excludable• Readily ascertainable value – easily accounted for

– Meal allowances– In-kind meals– Tax filing services

Qualified Transportation Fringes

• Excluded from income if:– Transportation between home and work in

commuter highway vehicle provided by employer

– Transit passes, vouchers, tokens or fare cards up to $230/month

– Parking provided on or near premises up to $230/month

Qualified Transportation Fringes Cont’d

• Exclusion Limits– Monthly limit applies

• Employees only

• Public and Private sector alike

• No written plan required

Qualified Transportation Fringes Cont’d

• Cash reimbursement and substantiation• Salary reduction plans• Determining the value of qualified parking• Rules for vanpools• Determining the value of transit passes• Determining, withholding and reporting

excess benefits• Qualified non-personal use vehicles

On-premises Athletic Facilities

• Must be located on premises

• Facility is operated by the employer

• All use is by employees, spouses and dependent children

• Current and former employees

• Is not a resort or residential facility

Qualified Retirement Planning Services

• Employees and spouses

• Retirement planning advice or information on qualified retirement plan (401K)

• Can include advice outside plan

• Does not include tax preparation, accounting or brokerage services

• Cannot discriminate towards highly compensated

Personal Use of Employer Provided

Vehicles

• Personal Use is Taxable if not– De Minimis– Qualified Non-personal Use– Automobile Salespersons

Personal Use of Employer Provided Vehicles Cont’d

• Simplified full exclusion

• Simplified partial exclusion– $0-$14,999 $3/day– $15,000-$29,999 $6/day– $30,000-$44,999 $9/day– $45,000-$59,999 $13/day– $60,000-$74,999 $17/day– $75,000 and above $21/day

• Accounting for Use – Valuation Methods– General Valuation Method– Special Valuation Methods

• Commuting Valuation Method• Annual Lease Valuation Method• Vehicle cents-per-mile Method

Personal Use of Employer Provided

Vehicles Cont’d

• Personal Use of Employer Provided Aircraft– General Valuation Rule– Non-commercial Flight Valuation Rule

• Free or Discounted Commercial Flights• Discounts on Property or Services• Club Memberships

– Working Condition Fringe?– Club vs. Organization

Other Taxable Fringe Benefits

Taxable Employer Provided Benefits

• Life Insurance– Group-term life insurance– Whole life insurance– Split dollar life insurance– Owners

Group Term Life

Example 1

Employer paid life = 2 X Employee’s salary, Salary = $65,000, Age 59 on 12/31/10, Maximum coverage is $125,000 per plan

Step 1: 2 x $65,000 = $130,000

Step 2: $125,000 – $50,000 = $75,000

Step 3: $75,000/$1000 = 75 units

Step 4: 75 x $.43 = $32.25

Step 5: $32.25 per month in taxable income

Group Term Life

Example 2Employer paid life = 2 X Employee’s salary, Salary = $65,000, Age

59 on 12/31/10, Maximum coverage is $125,000 per plan, Employee pays $25/month after tax for coverage

Step 1: 2 x $65,000 = $130,000

Step 2: $125,000 – $50,000 = $75,000

Step 3: $75,000/$1000 = 75 units

Step 4: 75 x $.43 = $32.25

Step 5: $32.25 - $25.00 = $7.25

Step 6: $7.25 per month in taxable income

Qualified Moving Expenses

• Recent regulations have significantly altered what is considered taxable and non-taxable for moving expenses

• Easier to discuss what is taxable

• Remember – you and your stuff

Moving Expenses• Deductibility

– Distance Test– Time Test

• Deductible (qualified, nontaxable) moving expenses– Transportation of Household Goods– Expenses of traveling from old residence

to new residence (excluding meals)

• Nondeductible (nonqualified, taxable) moving expenses– Meals while in transit– House hunting trips– Real estate expenses

• Reporting of moving expenses– Deductible– Nondeductible

Moving Expenses Cont’d

Educational Assistance• Job-Related• Non Job-Related

– $5,250 exclusion

Group Legal Services

Business Travel Expenses

• Away from home• Temporary• Daily Transportation Expenses• Accountable Plan

– Business Connection– Substantiation– Returning Excess Amounts

Business Travel Expenses Cont’d

• Substantiation vs. Per Diem allowance– M&IE-only per diem– Incidentals only per diem– High-low substantiation method– Prorated per diems– Mileage allowances– Flat rate

• Nonaccountable Plan

• Frequent Flyer Miles

• Spousal and family travel expenses

• Taxation and reporting requirements

Business Travel Expenses Cont’d

Employer Provided Meals and Lodging

• Employer Provided Meals– Furnished on employer premise– For the convenience of the employer

• Employer Provided Lodging– On the employer premises– For the convenience of the employer– Required as a condition of employment

Adoption Assistance• Dollar Limitation• Income Limitation• Eligible Child• Qualified Expenses• Program Requirements• Exclude from FIT but…• W2, Box 12, Code T

Advances and Overpayments

– FIT withheld– SS and Medicare taxes– FUTA– Gross repayments versus net– Subsequent calendar year

Awards and Prizes

• Based on…

– Length of Service– Safety Achievement– Civic and Charitable Awards– Prizes for Retail Salespeople

Back Pay Awards

• Taxable?– What portion is W-2 wages?– Interest– Attorney fees– Reporting back pay awards

• IRS versus SSA• Information required to SSA

• Bonuses• Commissions• Conventions• Death Benefits• Dependent Care Assistance

– $5,000 exclusion limitation

Other Payments Cont’d

Other Payments Cont’d

• Directors’ Fees• Disaster Relief Payments

– May be tax free

• Employer Paid taxes– Bonus– Award– Noncash anything

Employer Paid Taxes (Gross-Up)Gross Amount of Earnings = Desired Net Payment / (100% - Total Tax %)

1. Gross Amount of Earnings = $5,000 / (100% - Total Tax %)

2. 25% = Federal Income Tax Supplemental Tax Rate

6.2% = Social Security

1.45% = Medicare

32.65% = Total Tax %

3. Gross Amount of Earnings = $5,000 / (100% - 32.65 %)

4. Gross Amount of Earnings = $5,000 / 67.35%

Desired Net = $5,000.00

5. Gross Amount of Earnings = $7,423.90

Other Payments Cont’d

• Equipment Allowance• Gifts• Golden Parachute Payments• Guaranteed Wage Payments

• Jury Duty Pay• Leave Sharing Plans• Loans to Employees• Military Pay• Outplacement Services• Retroactive Wage Payments

Other Payments Cont’d

• Jury Duty Pay• Leave Sharing Plans• Loans to Employees• Military Pay• Outplacement Services• Retroactive Wage Payments

Other Payments Cont’d

• Security Provided to Employees

• Severance or Dismissal Pay

• Stocks

Other Payments Cont’d

• Stocks and Stock Options– Stock as compensation– Stock Options– Incentive Stock Options– Stock Purchase Plan– Non Qualified Stock Options– Tax Treatment– Written Statement

Stocks and Stock Options

Other Payments Cont’d

• Strike Benefits• Supplemental Unemployment

Benefits• Tips

– Withholding on tip income– When tips are deemed paid– ER share of FICA– Tax credit

Other Payments Cont’d

• Uniform Allowances

• Vacation Pay

• Wages Paid After Death– In same year– In subsequent year

Withholding and Reporting for Employer Provided

Benefits• Cash Fringe Benefits• Non Cash Fringe Benefits

– Withholding Methods– Imputed Income– Gross Up– Special Accounting Rule– W2 Requirements

Questions ?

Contact Information:

Tracie Sawade, CPP

tsawade@sbcglobal.net

847-464-1416