7/8/2015
Western PA Chapter of the APA
TAXABILITY OF FRINGE
BENEFITS
What is a Fringe Benefit?
When Is It Taxable?
Presented By:
Tammie Downey, CPP
Vice President, WPA APA
AVP / Assistant Payroll Manager, First Commonwealth Bank
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Let’s Define a Fringe Benefit
• Cash
• Cash equivalent items (i.e., gift cards/certificates)
• Property
• Services
• In addition to regular wages
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Let’s Define Taxable
• Subject to withholding and reported on the W-2 in the year the
benefit was provided
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Are Fringe Benefits Taxable?
• Taxable to employee unless specifically excluded
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How are Non-Cash Fringe Benefits Valued?
Fair Market Value (FMV):
• What would it cost employee to buy benefit from an unrelated third party?
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Let’s Define a Working Condition Fringe Benefit
• Property or service that employee would have been entitled to
deduct on a 1040 if employer hadn’t provided it
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Working Condition Fringe Benefit
• Must relate to employer’s business
• Employee could have deducted expense on 1040
• Employee must substantiate business use
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Let’s Define De Minimis Fringe Benefit
• Property or service
• Small in value
• Not provided to employee regularly
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How are de minimis fringe benefits reported?
• If the benefits qualify for exclusion
• No reporting is necessary
• If the benefits are taxable
• They should be included in wages on Form W-2
• They are subject to income tax withholding
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Let’s Define A Per Diem Payment
• Method of reimbursing employees for business expenses for
overnight travel
• Lodging
• Meals and incidental expenses (M&IE)
• Rates vary by city
• Federal Per Diem rates can be found at www.gsa.gov
• If rules are met, the reimbursement is tax free
• Accountable plan rules are followed
• Per diem reimbursement is at or below federal rates
• Receipts are not required
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Lodging Per Diem
• Use rate of city where you spend the night
• Room tax and energy charges are not part of lodging-they’re
reimbursed separately
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M&IE Per Diem
• Meals
• Tips for food and luggage handling
• Laundry and dry cleaning for travel of less than 4 consecutive
nights
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Per Diem – Other Rules
• Prorate M&IE for days employee departs and returns
• Employer may pay other tax-free business expenses in addition to
per diem:
• Room taxes
• Cab
• Telephone charges
• Laundry
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Let’s Look At Accountable Plan Rules
• Publication 463, Travel, Entertainment, Gift, and Car Expenses
• Employee is given allowance or reimbursement
• Amounts are non-taxable, if certain rules are met
• Business connection
• Directly related to trade or business
• Deductible on 1040
• Adequate accounting
• Verify Date, Time, Place, Amount, and Business Purpose
• Excess returned on a timely basis
• Within a reasonable period of time
• Determination of the length of a reasonable period of time will depend on the facts and
circumstances
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What is a Non-Accountable Plan?
• Does not meet ALL 3 RULES for Accountable Plans
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Commonly Provided Fringe Benefits
• Cell Phones
• No longer considered listed property
• Payments In Lieu of Insurance
• Receipts for insurance or medical expenses
• Non-taxable – No reporting required
• Cash Payments – No Accounting
• Fully taxable
• W-2 reportable
• Box 1 – Gross Compensation
• Box 3 – SSA Wages
• Box 5 – Medicare Wages
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Commonly Provided Fringe Benefits
• Moving Expenses
• IRC Section 132(g)
• Allows employer to reimburse employee
• IRC Section 217
• Allows individual to deduct certain expenses
• Not taxable to employee if
• They’re paid under an Accountable Plan
• Meet specific tests under IRC 217
• Individual must be an employee who incurs the expenses
• Expenses must:
• Closely relate to starting work at new job location
• Be allowed under section 217
• Meet time and distance tests
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Commonly Provided Fringe Benefits
• Moving Expenses – Travel Costs
• Non-taxable travel costs:
• Moving other members of household
• Airfare, car
• Lodging while travelling
• Parking fees, tolls
• Non-taxable moving costs – household goods and personal effects:
• Packing, crating, transporting
• Shipping car(s)
• Shipping pet(s)
• Storage & insurance (30 consecutive days)
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Commonly Provided Fringe Benefits
• Moving Expenses – Reimbursements
• Reimbursements are not included in income if:
• The reimbursed expenses qualify under IRC 217
• They are paid in the same calendar year they are deducted
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Commonly Provided Fringe Benefits
• Meal Allowances and Reimbursements
• Meals while traveling
• Tax-exempt requirements:
• Must be away from tax home over night or long enough to require substantial sleep or rest
• No set number of hours or miles away
• Substantiation required
• Meals while not traveling
• De minimis meal allowances
• Meals with meetings or entertainment
• Tax-exempt if meal meets test:
• Directly Related test or Associated With test
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Commonly Provided Fringe Benefits
• Meal Allowances and Reimbursements
• Directly Related Meals are tax-exempt
• Business meetings, conventions, conferences
• Service club or professional meetings
• i.e., Rotary, Finance Officers Association, CPA, WPA APA
• Associated With Test
• Meals with clear business purpose
• Substantial business discussion immediately before or after a meal
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Commonly Provided Fringe Benefits
• De Minimis Meals are tax-exempt if meal is:
• Small in value and occasional
• Not provided regularly or often
• Provided so employee can work overtime
• Generally, must be consumed during overtime
• Not based on number of hours worked
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Commonly Provided Fringe Benefits
• Meal Allowance and Reimbursements
• Meals consumed en route to daily business events are not exempt
• Breakfast and dinner while traveling to and from a daily convention or conference would
not be exempt
• If not staying at a hotel, there is no tax exempt meal reimbursement while
traveling to and from event
• If everyone is responsible for their own arrangements during a lunch break,
the reimbursement for lunch is fully taxable
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Commonly Provided Fringe Benefits
• Employee’s Car
• Reimbursed business use is non-taxable if AT or BELOW Federal Mileage
Rate
• 2015 - .575 cents/mile
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Commonly Provided Fringe Benefits
• Employer Provided Vehicles
• See Publication 15-B for valuation rules on employer provided vehicles
• Qualified non-personal use vehicle
• By its design is unlikely to have personal use
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Clearly marked police and fire vehicles
School buses
Unmarked law enforcement vehicles
Special purpose vehicles; i.e., snow plows
Vans and pickups must be modified to qualify
• Use is tax-exempt
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Fringe Benefit Code Sections
A Few Examples:
• IRC 119, Meals and Lodging
• IRC 127, Educational Assistance
• IRC 132, General Fringe Benefit Section
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Where To Find Helpful Information
www.irs.gov
Educational Resources
• Publication 15, Employer’s Tax Guide (Circular E)
• Publication 15-A, Employer’s Supplemental Tax Guide
• Publication 15-B, Fringe Benefit Tax Guide
• Publication 463, Travel, Entertainment, Gift, and Car Expenses
• Publication 521, Moving Expenses
• Publication 525, Taxable and Nontaxable Income
• Publication 563, Federal-State Reference Guide
• Publication 1542, Per Diem Rates
• Publication 5137, Fringe Benefit Guide
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THANK YOU
Questions?
Additional Discussion?