Fringe Benefits Section 132 and Beyond Presented on Wednesday, February 7, 2018

Transcription

1 Fringe Benefits Section 132 and Beyond Presented on Wednesday, February 7,

2 2016 The Payroll Advisor 2

3 Housekeeping Credit Questions Today s topic Speaker 2016 The Payroll Advisor 3

4 To earn RCH credit you must Stay on the webinar, online for the full 60 minutes Be watching using your unique URL Certificates delivered by , to registered , by March 7 th 2016 The Payroll Advisor 4

5 5

6 Our Focus For Today Fringe Benefits Overview Reporting and taxing fringe benefits De Minimis fringe benefits No additional cost services Working condition fringe benefits Employee discounts Employee achievement awards for length of service and safety Prizes and awards cash and noncash Cell phones Gift certificates and gift cards Holiday gifts 6

7 Fringe Benefit Overview 7 Are a form of payment for the performance of services Does not have to be your employee but could be an independent contractor, partner or director But normally is an employee Determine the taxation Usually FIT, FICA and FUTA and state equivalents but not always

8 Adding to the Payroll Most fringe benefits are added to the payroll for taxation and reported as imputed income Income recognized but not received through the payroll department Add to the gross calculate and withhold taxes deduct before calculating net of check Imputed income causes employee to have a smaller check and higher taxes make sure they understand that 8

9 Taxing Fringe Benefits 9First thing to remember! CASH or ITS EQUIVALENT IS ALWAYS TAXABLE!

10 Reporting Fringe Benefits- Form W-2 10 Form W-2: Boxes 1, 3, and 5 unless specifically exempted from that tax May need to be in Box 12 under appropriate code Other boxes as they apply Don t forget the state taxes!

11 Reporting Fringe Benefits-Form 941 Lines 2 and 5a, 5c & 5d unless specifically exempted 11

12 Tax Cuts and Jobs Act of 2017 Not all the ramifications are known as of yet Effect of lowering deduction for employers from 100% to 50% for meals may effect taxation IRS is still working on this Transportation is lowered to 0% deduction again IRS is making determination Waiting for Publication 15-B May require additional tracking by payroll Business may decide to preserve the deduction by taxing as wages if needed 12

13 De Minimis Falls under Section 132 of IRC Any property or service provided to an employee that has so little value that accounting for it would be unreasonable or administratively impractical Have to take into account how often and to how many employees it is given No de minimis on CASH or its equivalent! 13

14 De Minimis Examples Personal use of photocopier if no more than 15% of total use Group meals, employee picnics Occasional tickets to sports events or shows not given as an award everybody goes Occasional Meals for working overtime Occasional Coffee, donuts or soft drinks 14

15 De Minimis Examples Flowers or fruit for special circumstances Local telephone calls Traditional birthday or holiday gifts (NO CASH) with a low FMV Commuting use of employer s car if no more than once per month Employer provided local transportation 15

16 De Minimis Examples Example 1: an employer provides daily snacks valued at one dollar to an employee. Although the amount is small, the benefit is provided on a regular basis and is, therefore, taxable as wages Example 2: An employer provides a meal daily to one employee, but not to any other employee. The benefit is frequent with respect to that one employee and is therefore not de minimis even though it is infrequent with respect to the rest of the workforce 16

17 Never De Minimis Cash except meal money in certain cases (we will discuss later) Cash Equivalent: Gift cards savings bonds, gift certificates Use of Employers: Apartment, condo, vacation home or boat Memberships in country clubs or athletic facilities 17

18 Definitions under De Minimis The IRS does not furnish a concrete definition of the term occasional The law does not specify a value threshold for benefits to qualify as de minimis One time, in 2001, the IRS gave advice that a benefit valued at $100 did not qualify as de minimis but this advice was for that specific situation and cannot be relied upon for other situations 18

19 Occasional Meal Reimbursements Regularly provided meal money does not qualify as de minimis Occasional meal money may qualify if the following 3 conditions are met: 1. Occasional basis: meal is reasonable in value and not provided regularly or frequently 19

20 Occasional Meal Reimbursements 2. Provided for overtime work: overtime work necessitates an extension of the employee s normal work schedule 3. Enables overtime work: provided to enable the employee to work overtime Meals provided on employer s premises that are consumed during the meal period or Meal money expended for meals consumed during that period satisfy this condition 20

21 Not Occasional Meal Reimbursements Not excludable if provided as part of a company policy or union contract Required and not occasional Must set up procedures therefore must account for the benefits which does not meet the administratively impractical standard Meal money calculated on the basis of a number of hours worked is never excludable as de minimis 21

22 Example for Meal Money Nontaxable: A commuter ferry breaks down and the engineers are required to work overtime to make repairs. After working 8 hours, the engineers break for dinner because they will be working for an additional 3 hours. The supervisor gives each employee $10 for a meal 22

23 Example for Meal Money Taxable: An employer has a policy of reimbursing employees for breakfast or dinner when they are required to work an extra hour before or after their normal work schedule. The reimbursements are taxable because the employer has a policy which indicates the benefit is provided routinely. In addition the meal reimbursement does not enable the employee to work overtime, but is an incentive to do so. 23

24 Transportation Fringe Benefits Local commuting transportation fare provided to an employee by an employer on an occasional basis and to enable to the employee to work overtime may be excluded as a de minimis fringe benefit 24

25 Unusual Circumstances and Unsafe Conditions Local transportation for commuting provided to an employee by an employer because of unusual circumstances and unsafe conditions is taxable to the employee as wages at the rate of $1.50 each way Any additional value is excludable Unusual circumstances include such times as when an employee is temporarily working outside his normal hours or has a shift change 25

26 Unusual Circumstances and Unsafe Conditions Unsafe conditions determined by a history of crime in the geographic area surround the employee s workplace or residence and the time of day during which the employee must commute Must be a qualified employee to use this special rule Must have certain conditions met to use this rule 26

27 Qualified Employee for Unsafe Conditions Performs services during the year Paid on an hourly basis Not an exempt employee under the FLSA Is paid overtime or subject to overtime Not paid more than $120,000 for 2016 Cannot be a control employee 27

28 Required Conditions Employee normally walks or uses public transportation for commuting Written policy that states employer does not provide transportation for personal purposes other than for commuting because of unsafe conditions Employees does not use the transportation for personal purposes other than commuting because of unsafe conditions 28

29 Example Mary is a qualified employee who works as a data-entry clerk from 11pm to 7am. Public transportation is the only means of transport available to her but is considered unsafe by a reasonable person at the beginning of her shift. Employer hires car service to pick her up each evening and return her home each morning. The commute to work is $1.50 because of the unsafe conditions. However the commute home is the FMV of the car as unsafe conditions do not exist for that trip 29

30 Qualified Transportation Fringe Applies to: Benefit 1. A ride in a commuter highway vehicle between the employee s home and work place 2. A transit pass 3. Qualified parking Exclusion applies whether you provide only one or a combination of these benefits except bicycles 30

31 Providing Benefits Can be provided directly by employer or through reimbursement arrangement Voucher or similar item not available? Can do cash in that type of instance If value is over limit then include amount over limit in wages 31

32 Transit Passes Any pass, token, farecard, voucher or similar item entitling a person to ride on mass transit and includes bus, rail or ferry May be publically or privately provided $260 per month may be excluded from wages States may be different 32

33 Transit Passes If sold at discount the discounted price rather than the face amount can be used to determine the exclusion so long as discounted price is available to the public Example: 10 tickets cost $17.50 if purchased separately but are sold in a packet of 10 for $15. This is offered to the general public so $15 counts against the annual or monthly minimum exclusion 33

34 Transit Passes No substantiation requirements if the employer distributes the transit passes themselves Cash reimbursements are only nontaxable if no voucher or similar item is readily available for direct distribution to employees Example 1: Fred buys a transit pass for $100 each month. At the end of the month he presents it to his employer and is reimbursed the $100 bona fide reimbursement arrangement and is excluded from income 34

35 Transit Passes Example 2: Larry purchases a monthly transit pass for $100 but presents it to the employer at the beginning of the month. He certifies he purchased it and will use it during the month. The employer reimburses Larry at the time he presents the transit pass. Bona fide reimbursement arrangement is established and the reimbursement is excluded from income 35

36 Qualified Parking Parking provided to employees on or near employer s business premises Includes parking on or near location where employees commute using mass transit or car pools $260 per month 36

37 Commuter Highway Vehicle Seats at least 6 adults not including driver 80% of mileage for commuting Employees in at least half the seats 37

38 Bicycle Commuting This exclusion was removed by the new tax bill 38

39 No Additional Cost Services Employers generally can exclude the value of a no-additional-cost service under Section 132 Employer must not incur an substantial additional costs Ordinary line of business for which employee performs services Usually excess capacity services such as airline seats or hotel rooms Can apply to cable and phone services as well 39

40 No Additional Cost Services Reciprocal agreements between employers are permitted The service is the same type of service generally provided to customers in both the line of business in which the employee works and the line of business in which the service is provided. The employer of the employee and the employer providing the service have a written reciprocal agreement under which a group of employees of each employer, all of whom perform substantial services in the same line of business, may receive no-additional-cost services from the other employer. Neither the employer of the employee nor the other employer incurs any substantial additional cost either in providing the service or because of the written agreement. 40

41 No Additional Cost Services Example: Employee J works for Fly By Night Airlines. Whenever there is an open seat on a flight, the airline allows employees to fill the seat. For Employee J to take advantage of this benefit, she must be willing to fly standby to make sure that a paying customer does not want the seat. If the flight is ready to take off and the seat is empty she is allowed to fly on that flight. Following these procedures the cost of the flight is not considered taxable income to Employee J. (Note: Sales tax and landing taxes are considered in a separate category and are decided by individual airline and company). 41

42 Working Condition Fringe Benefit Property or services provided to employee so employee can perform his or her job Cost excluded from wages under Section 132 Exclusion applies to extent employee could deduct expense if he or she pays for it themselves Example: Job related education course Must be substantiated 42

43 Employee Discounts Applies to price reductions employer gives to employee On property or services offered to customers in the ordinary course of the line of business in which employee performs substantial services Section 132 Cannot use for real property or investment property such as stocks 43

44 Employee Discounts The following limits apply: Discount on services 20% of price charged to non-employee customers For merchandise: Employer s gross profit percentage times the price charged to non-employee customers Example: Employee G works at Main Street Store and is allowed a 10% discount when buying merchandise from the store 44

45 Employee Achievement Awards Length of Service and Safety only Tangible personal property reinforced by TCJA No cash or gift cards Not disguised compensation Meaningful presentation No more than specific dollar amounts $1600 qualified plan $400 nonqualified plan 45

46 Length of Service Award Will qualify only if either of the following apply: The employee receives the award after his or her first 5 years of employment The employee did not receive another length-of-service award (other than de minimis) during the same year or in any of the prior 4 years 46

47 Safety Awards Qualifies unless one of the following applies: Given to a manager, administrator, clerical employee or other professional employee During the tax year, more than 10% of your employees have already received a safety achievement award (not counting de minimis) 47

48 Bonuses, Prizes and Awards Cash is taxable! So are all other types of payments Trips, tangible personal property or whatever! Doesn t matter what it is-if given as a prize, bonus or award it is taxable income Doesn t matter what you call the award 48

49 Company Supplied Cell Phones The value of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a working condition fringe benefit. Personal use of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a de minimis fringe benefit. 49

50 Noncompensatory Business Purposes You provide a cell phone primarily for noncompensatory business purposes if there are substantial business reasons for providing the cell phone. Examples of substantial business reasons include the employer's: 50

51 Noncompensatory Business Purposes Need to contact the employee at all times for work-related emergencies, Requirement that the employee be available to speak with clients at times when the employee is away from the office, and Need to speak with clients located in other time zones at times outside the employee's normal workday. 51

52 Noncompensatory Business Purposes You cannot exclude from an employee's wages the value of a cell phone provided to promote good will of an employee, to attract a prospective employee, or as a means of providing additional compensation to an employee. 52

53 Reimbursement for Personal Cell Phones Used for Business If the employer requires the employee to maintain and use their personal cell phones for business purposes and reimburses the employee for the business use of their personal cell phones the following rules apply: 53

54 Reimbursement for Personal Cell Phones Must have substantial business reasons for requiring employee s use of personal cell phones in connection with employer s trade or business 54

55 Substantial Business Reasons Need to contact the employee at all times for work-related emergencies, Requirement that the employee be available to speak with clients at times when the employee is away from the office, and Need to speak with clients located in other time zones at times outside the employee's normal workday. 55

56 Reimbursement for Personal Cell Phones Employee must maintain cell phone coverage that is reasonably related to the needs of the employer s business Reimbursement must be reasonably calculated so as to not exceed actual expenses the employee incurs Must not be a substitute for a portion of the employee s wages 56

57 Acceptable Reimbursement Arrangement Employee must communicate with employer s clients outside of normal business hours Employee s basic coverage plan charges a flatrate per month for a certain number of minutes for domestic calls Employer reimburses employee for the monthly basic plan expense to enable employee to maintain contact with business clients after hours 57

58 Unacceptable Reimbursement Arrangements Reimbursement for international or satellite cell phone coverage for technician whose clients are in local geographical area Pattern of reimbursement that deviates significantly from a normal cell phone use in the employer s business Example: employee is reimbursed $100 per quarter in quarters 1-3 of the year but receives a reimbursement of $500 in quarter 4 58

59 Holiday Gifts /Gift Certificates, Cards Can be De Minimis Cash or cash equivalent is taxable This includes gift certificates to supermarkets! Turkey rule applies Turkey, ham or similar item of nominal value at holiday time. Must be for the actual turkey not to store 59

60 Are There Any Questions? 60

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