Tracie Sawade, CPP

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

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 2 Employer 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: $ $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

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