“Fringe” Benefits
(Section 132)
Chapter 52
Employee Benefit & Retirement Planning
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 2009, The National Underwriter Company
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“Fringe” Benefits
(Section 132)
Chapter 52
Employee Benefit & Retirement Planning
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 2009, The National Underwriter Company
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“Fringe” Benefits
(Section 132)
Chapter 52
Employee Benefit & Retirement Planning
Fringe benefits are non-cash compensation benefits
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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 2009, The National Underwriter Company
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“Fringe” Benefits
(Section 132)
Chapter 52
Employee Benefit & Retirement Planning
Employee Discounts
Employee receives discount on retail merchandise sold
Advantages for employer:
– Employees value discount
– Low cost to employer
– Promotes products
Copyright 2009, The National Underwriter Company
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“Fringe” Benefits
(Section 132)
Chapter 52
Employee Benefit & Retirement Planning
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 2009, The National Underwriter Company
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“Fringe” Benefits
(Section 132)
Chapter 52
Employee Benefit & Retirement Planning
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 2009, The National Underwriter Company
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“Fringe” Benefits
(Section 132)
Chapter 52
Employee Benefit & Retirement Planning
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 2009, The National Underwriter Company
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“Fringe” Benefits
(Section 132)
Chapter 52
Employee Benefit & Retirement Planning
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:
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employer operates eating facility
on or near business premises
revenue covers or exceeds cost of operation
access nondiscriminatory
Copyright 2009, The National Underwriter Company
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“Fringe” Benefits
(Section 132)
Chapter 52
Employee Benefit & Retirement Planning
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?
Copyright 2009, The National Underwriter Company
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“Fringe” Benefits
(Section 132)
Chapter 52
Employee Benefit & Retirement Planning
Qualified Transportation
Includes:
– Transportation in “commuter highway vehicle”
– Transit pass for use on public or private transit system
– “Qualified parking”
Copyright 2009, The National Underwriter Company
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“Fringe” Benefits
(Section 132)
Chapter 52
Employee Benefit & Retirement Planning
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
Copyright 2009, The National Underwriter Company
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“Fringe” Benefits
(Section 132)
Chapter 52
Employee Benefit & Retirement Planning
Qualified Retirement Planning Services
Excluded from employee taxable income if offered on
nondiscriminatory basis:
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retirement planning services
tax preparation
legal services
brokerage services
Note: Services can go beyond those related to participation in
employer’s qualified retirement plan
Copyright 2009, The National Underwriter Company
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“Fringe” Benefits
(Section 132)
Chapter 52
Employee Benefit & Retirement Planning
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
Copyright 2009, The National Underwriter Company
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“Fringe” Benefits
(Section 132)
Chapter 52
Employee Benefit & Retirement Planning
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 2009, The National Underwriter Company
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“Fringe” Benefits
(Section 132)
Chapter 52
Employee Benefit & Retirement Planning
Application Exercise
Which of the following would be taxable to an
employee?
a. Occasional money for meals or local transportation
b. Taxi fare to travel after business hours to or from unsafe
area
c. Group-term life insurance on spouse or child
d. Use of company lodge for the weekend
e. Season theatre tickets
f. Flowers or gifts for reward, illness, family crisis
Copyright 2009, The National Underwriter Company
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“Fringe” Benefits
(Section 132)
Chapter 52
Employee Benefit & Retirement Planning
Employee Discounts
In addition to employees, discounts can be
offered to
– Retired or disabled employees
– A widow(er) of an employee of the business
– A spouse or dependent child (as defined by IRC)
Copyright 2009, The National Underwriter Company
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