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