1. In general, employees are not taxed on fringe benefits IF offered on a nondiscriminatory basis
If only highly compensated enjoy the benefit, the value of the benefit is considered taxable income
Copyright 2011, The National Underwriter Company

2. Definition of Highly Compensated
Any employee who, during the current or preceding year:
Was at any time an owner of more than 5% of the business; or
Received compensation from the employer in excess of $110,000 (in 2009, as indexed).
Copyright 2011, The National Underwriter Company

3. Fringe benefits are non-cash compensation benefits
Employee discounts
No-additional cash services
Company cafeterias and meal plans
Qualified transportation
Qualified retirement planning services
Gyms and athletic facilities
“Working condition fringes”
“De minimis fringes”
Copyright 2011, The National Underwriter Company

4. Employee Discounts
Employee receives discount on retail merchandise sold
Advantages for employer:
Employees value discount
Low cost to employer
Promotes products
Copyright 2011, The National Underwriter Company

5. Employee Discounts Tax implications
Employee discounts are excluded from taxable income IF discount:
Is offered to employees in nondiscriminatory manner
Does not exceed employer’s gross profit percentage
Items are available to customers in ordinary line of business (real estate and investment products excepted)
Copyright 2011, The National Underwriter Company

6. No-Additional-Cost Services
Discounted services provided to employees at low or no cost
Advantages
Services valued by employee
Low or no extra cost to employer
Utilizes excess capacity that generates no revenue
Copyright 2011, The National Underwriter Company

7. No-Additional-Cost Services
Tax implications
No-additional-cost services are excluded from taxable income IF discount:
Offered to employees in nondiscriminatory manner
Does not cost employer OR is < 20% of retail price
Relates to services offered to customers in ordinary line of business
Copyright 2011, The National Underwriter Company

8. Company Cafeterias and Meal Plans
Tax rules are complex
Not taxable IF:
Section 119 “on-premises” plan:
meals furnished
for convenience of employer
on business premises
Section 132(e)(2) “on or near” plan:
employer operates eating facility
on or near business premises
revenue covers or exceeds cost of operation
access nondiscriminatory
Copyright 2011, The National Underwriter Company

9. Company Cafeterias and Meal Plans
Generally, other types of meals or meal plans are taxable to employee unless employees are working away from home
Application Exercise
An employee of Comstock Printing invites her husband to join her for lunch in the company cafeteria, located on the business premises. Must this employee consider her lunch or her husband’s lunch taxable income?
No. This would be a Section 119 on-premises plan. Meals furnished by the employer for employees, their spouses and dependents are not taxable to the employee as long as Section 119 or Section 132(e) rules are met.
Copyright 2011, The National Underwriter Company

10. Qualified Transportation
Includes:
Transportation in “commuter highway vehicle”
Transit pass for use on public or private transit system
“Qualified parking”
No. This would be a Section 119 on-premises plan. Meals furnished by the employer for employees, their spouses and dependents are not taxable to the employee as long as Section 119 or Section 132(e) rules are met.
Copyright 2011, The National Underwriter Company

11. Qualified Transportation
Advantages
Benefit is tax-free to employees and tax-deductible for employer
Unlike other fringe benefits, can be offered on cash-option (salary reduction) basis
No nondiscrimination requirements
No. This would be a Section 119 on-premises plan. Meals furnished by the employer for employees, their spouses and dependents are not taxable to the employee as long as Section 119 or Section 132(e) rules are met.
Copyright 2011, The National Underwriter Company

12. Qualified Retirement Planning Services
Excluded from employee taxable income if offered on nondiscriminatory basis:
retirement planning services
tax preparation
legal services
brokerage services
Note: Services can go beyond those related to participation in employer’s qualified retirement plan
No. This would be a Section 119 on-premises plan. Meals furnished by the employer for employees, their spouses and dependents are not taxable to the employee as long as Section 119 or Section 132(e) rules are met.
Copyright 2011, The National Underwriter Company

13. Gyms and Athletic Facilities
Tax Free to employees IF:
On employer’s premises (can be away from business)
Operated by employer
Substantially all use is by employees, and their spouses and dependents
No. This would be a Section 119 on-premises plan. Meals furnished by the employer for employees, their spouses and dependents are not taxable to the employee as long as Section 119 or Section 132(e) rules are met.
Copyright 2011, The National Underwriter Company

14. Working Condition Fringes
Property or services an employer provides an employee that IF the employee paid for them, the payment would be allowed as an employee business expense deduction
De Minimis Fringe
Goods or services so small that accounting for them is “unreasonable” or “administratively impractical
Copyright 2011, The National Underwriter Company

15. Application Exercise
Which of the following would be taxable to an employee?
Occasional money for meals or local transportation
Taxi fare to travel after business hours to or from unsafe area
Group-term life insurance on spouse or child
Use of company lodge for the weekend
Season theatre tickets
Flowers or gifts for reward, illness, family crisis
Not taxable: a, b, f ; Taxable: c, d, e
Copyright 2011, The National Underwriter Company