WHAT YOU SHOULD KNOW ABOUT FRINGE BENEFITS … · 12/4/2017 4 FRINGE BENEFIT EXCLUSIONS Specific Exclusion Provisions from IRC Sec. 132 No-additional-cost service Qualified employee

12/4/2017

1

WHAT YOU SHOULD KNOW ABOUT FRINGE BENEFITSDECEMBER 5, 2017

TO RECEIVE CPE CREDIT

Participate in entire webinar

Answer polls when they are provided

If you are viewing this webinar in a group

Complete group attendance form

All group attendance sheets must be submitted to [email protected] within 24 hours of live webinar

Answer polls when they are provided

If all eligibility requirements are met, each participant will be emailed their CPE certificates within 15 business days of live webinar

12/4/2017

2

PRESENTERS

Paige Gerich, [email protected]

Jeanette Verrelli, CPASenior [email protected]

OUR GOALS FOR TODAY

Fringe Benefit Analysis

Questions

Exclusions

Why are we here?

Common Fringe Benefits

12/4/2017

3

FRINGE BENEFITS

Fringe benefits are often overlooked & are an area of focus of the IRS

The following factors are common reasons Difficulty in identifying

Difficulty in valuing

Uncertainty in reporting

FRINGE BENEFITS

General Rule: If the Internal RevenueCode does not specifically excludethe benefit from income, then the

benefit is taxable income to the employee

12/4/2017

4

FRINGE BENEFIT EXCLUSIONS

Specific Exclusion Provisions fromIRC Sec. 132 No-additional-cost service

Qualified employee discounts

Working condition fringe

De Minimis fringe

Qualified transportation fringe

Qualified moving expense reimbursements

Qualified retirement planning services

Qualified military base realignment & closure fringe

NO ADDITIONAL COST BENEFITS

Excludable from income (IRC Sec. 132(b)) if

The service is offered for sale to the employer’s customers in the ordinary course of business

The employer does not incur substantial additional costs in providing these services

12/4/2017

5

NO ADDITIONAL COST BENEFITS

Examples

Free telephone service provided to telephone company employees

Free hotel rooms provided to hotel employees

Furnishing of bus, cruise, airline, railroad or subway transportation

Fitness/rehab centers used by employees for hospitals

Fitness/recreation centers used by employees for universities

EMPLOYEE DISCOUNTS

Excluded from income (IRC Sec. 132(c)) if The discounts are for qualified property or

services to the extent the discount does not exceed certain limitations

Limitations Services: Maximum discount is 20 percent

Property: Maximum discount is the employer’s gross profit percentage

12/4/2017

6

EMPLOYEE DISCOUNTS

Examples

Manufacturers who provide products to employees at cost

Medical doctors who reduce rates to employees for medical services

Employee discounts in a hospital cafeteria

Employee discounts at a university bookstore or other retail establishment

WORKING CONDITION FRINGE BENEFITS

Entire value of property or service excludable from employee’s income(IRC Sec. 132(d)) if The employee would be able to deduct it

as a business expense

Does not preclude non-itemizers or take into account that such deductions may be limited to 2 percent of AGI threshold for miscellaneous itemized deductions

12/4/2017

7


Examples

Subscriptions to business periodicals used by the employee at work

Business use of a car

Business meals

Reimbursements for business travel


Volunteers must meet the following conditions to exclude these benefits Performing service for a tax-exempt entity

or a governmental agency

The total value of the fringe benefits must be substantially less than the total value of the services they provide to the organization on a volunteer basis

12/4/2017

8

DE MINIMIS BENEFITS

Excluded from employee’s income (IRC Sec. 132(e)) when Employer-provided property or services have

such a small value & frequency that accounting for them would be impractical

De Minimis rules do not apply to Cash & cash equivalents (including gift cards)

Membership in private country clubs or athletic facilities

DE MINIMIS BENEFITS

Examples Employee holiday parties

Holiday gifts (other than cash) with a low FMV

Company picnics

Coffee & doughnuts

Occasional personal use of the copy machine

12/4/2017

9

FITNESS & ATHLETIC FACILITIES

Exclusion (IRC Sec. 132(j)(4)) applies to Value of the use or availability of a gym or

athletic facility that is not open to the public

Conditions Facility is located on the employer’s premises

Facility is operated by the employer, &

Substantially all use is by employees of the employer (or employee’s spouses & dependent children)


Nondiscrimination rules for facilities apply Can’t be for certain employees only

Examples of athletic facilities Tennis courts

Gymnasiums

Pools

Golf courses

12/4/2017

10


Benefit to university employees of using fitness centers for students are excluded under the “no-additional-cost” fringe benefit rule

University A University B

Provides off-campus fitness memberships to employees – FMV of membership included as taxable

income to the employee

Has an on-campus fitness center operated by the university for

students – benefit excluded as “no-additional-cost” fringe benefit


Benefit to hospital employees of using fitness/rehabilitation centers are excluded under the “no-additional-cost” fringe benefit rule Example

Hospital A provides free access to fitness center to employees during the normal operating hours available to the public/patients – benefit excluded as “no-additional-cost” fringe benefit

Hospital B provides free access to fitness center to employees during the three hours every morning before the center is open to the public/patients – benefit included in income as a taxable fringe benefit, would require additional cost to operate during this time for just the employees

12/4/2017

11

QUALIFIED TRANSPORTATION FRINGE BENEFITS

Exclusion (IRC Sec. 132(f)) when Employer provides one or more of the following

transportation benefits

Transit passes

Qualified parking

Certain transportation in commuter highway vehicle

Qualified bicycle commuting reimbursements

QUALIFIED TRANSPORTATION FRINGE BENEFITS

Limitations Exclusion calculated monthly

Maximum $255/month for aggregate total of transit passes & commuter highway vehicles

Maximum $255/month for qualified parking

Maximum $20/month for bicycle commuting reimbursements

12/4/2017

12

QUALIFIED MOVING EXPENSE REIMBURSEMENT

Reimbursements from employer excluded from income (IRC Sec. 132(g)) if Expenses were paid or incurred in

connection with the commencement of work as an employee or as a self-employed individual at a new principal place of work

Conditions Distance test

Time test

QUALIFIED MOVING EXPENSE REIMBURSEMENT

Examples Expenses of moving household goods & personal effects from one

residence to another

Expenses including lodging of moving from one residence to another

Includes payments made directly to a third party & services furnished in kind

Reimbursements directly to the employee are reported on the employee’s Form W-2, Box 12 using Code P

12/4/2017

13

QUALIFIED RETIREMENT PLANNING SERVICES

Exclusion (IRC Sec. 132(m)) includes Information about the plan

Advice & information regarding retirement income planning for an individual & how the employer’s plan fits into the individual’s overall retirement plan

QUALIFIED RETIREMENT PLANNING SERVICES

Limitations Does not apply to general services such as

tax preparation, accounting, legal or brokerage services

Does not apply to highly compensated employees unless service is available on substantially the same terms as to all employees provided information regarding the plan

12/4/2017

14

MILITARY BASE REALIGNMENT & CLOSURE

Exclusion (IRC Sec. 132(n)) refers to one or more payments made under the Homeowners Assistance Program (HAP) to offset the adverse effects on housing values as a result of a military base realignment or closure

MILITARY BASE REALIGNMENT & CLOSURE

Applies to Federal civilian employees & members of the

Armed Forces who own or owned property near a military base

Certain wounded Armed Forces members & wounded civilian Department of Defense & Coast Guard employees

Armed Forces members permanently reassigned from an area at or near a military installation to a new duty station more than 50 miles away

12/4/2017

15

FRINGE BENEFITS ANALYSIS

Four steps to help overcome these difficulties to analyze fringe benefit

reporting


1. Identify the particular fringe benefit & start with the assumption that its value will be taxable as compensation to the employee

2. Check to see if there are any statutory provisions that exclude the fringe benefit from the employee’s gross income Does the particular benefit provided meet the statutory definition of

the exclusion? Will all “employees” meet the definition of “employee” provided in

the exclusion? Are there special rules to consider? What is excluded? Any limits to the types of benefits or employees afforded an

exclusion?

12/4/2017

16


3. Value any portion of the benefit that is not excludable for inclusion in the employee’s gross income

4. Document the decision & support for treatment of the fringe benefit

COMMON FRINGE BENEFITS

Accident & health benefits Gifts & awards Adoption assistance Dependent care assistance Educational assistance Group-term life insurance

coverage Lodging & meals on business

premises Housing assistance &

allowances* Payments for business use of

personal residence*

Professional dues, publications & meetings

Companion travel*

Employer provided auto use

Travel & entertainment reimbursements

Cell phone usage

Health or social club dues*

Personal services*

*Schedule J Disclosures Required

12/4/2017

17

GIFTS & AWARDS

FMV of the rewards are included in gross income of the employee with some exceptions (IRC Sec. 74)

Employers may give employees cash or noncash awards & prizes as a reward for achievements in the organization

Cash gifts & awards are always included in gross income

GIFTS & AWARDS

Gifts & awards may be excluded from income under certain exceptions De minimis fringe benefits Tangible noncash employee achievement awards given for length

of serviceMeaningful presentation FMV of award must be under $400Greater than five years of service

Traditional retirement awards presented upon completion of a lengthy term of serviceNo limitation on FMVNo expectation of future serviceNot compensatory

12/4/2017

18

ADOPTION ASSISTANCE

Exclusions from income (IRC Sec. 137) include Must be paid under a written adoption assistance plan

Written plan must be in place before expenses incurred

Notice of plan existence must be provided to the employee before expenses are incurred

Qualified Expenses

Adoption fees

Court costs

Attorney fees

Travel expenses while away from home

Maximum reimbursement levels

DEPENDENT CARE ASSISTANCE

Exclusion from income (IRC Sec. 129(a)) for A plan by which the employer

Pays (or reimburses an employee for payment to) a third party for dependent care

Provides a dependent care facility for the use of employees

Must be pursuant to a dependent assistance program Must be a separate written plan

For the exclusive benefit of the employees

Benefits those qualifying under eligibility guidelines of the employer

Employees also must have attained the age of 21 & completed one year of service

12/4/2017

19

DEPENDENT CARE ASSISTANCE

Limitations Maximum exclusion is $5,000 per year ($2,500

for married filing separately) Cannot exceed the employee’s earned income

or the earned income of the lower earning spouse for an employee who is married

Examples Daycare assistance On-site child care

EDUCATIONAL ASSISTANCE – QUALIFIED EAPS

Qualified educational assistance programs (Qualified EAPs) Exclusion from income (IRC Sec. 127(b)) for

A plan by which the employer furnishes educational assistance to an employee

Must be pursuant to an employer educational assistance program Must be a separate written plan

For the exclusive benefit of the employees

Benefits those qualifying under eligibility guidelines of the employer

There may not be an alternative program available to employees

Reasonable notification of the program’s availability & terms must be provided

12/4/2017

20

EDUCATIONAL ASSISTANCE

Supplies & equipment

Books

Fees

Tuition

Examples

EDUCATIONAL ASSISTANCE – QUALIFIED EAPS

Limitations Maximum exclusion is $5,250 per calendar

year Cannot discriminate in favor of highly

compensated employees

Job-related & non-job-related education may qualify

To the extent that benefits are not excluded under IRC Sec. 127, they may still be excluded as working condition fringe benefits if they would have been deductible by employee as a business expense

12/4/2017

21

EDUCATIONAL ASSISTANCE – JOB-RELATED

Job-related education assistance – Payments or reimbursements for job-related educational expenses

Exclusion from income as working condition fringe when Expenses would have been deductible by employee as

job-related expense

Courses must relate to maintaining or improving the skills required for the job

The education must not lead to the employee qualifying for a new trade or business

No dollar limits

Professional education (CPE, CME, etc.)

EDUCATIONAL ASSISTANCE – QUALIFIED TUITION REDUCTION

Qualified tuition reduction – For employees of higher educational institutions. Exclusion from income (IRC Sec. 117(d)) Employee or the employee’s spouse or

dependents

Below graduate level courses

May not discriminate in favor of highly compensated employees

Special exception: Tuition reduction for graduate students that are teaching &/or research assistants is excludable from the employee’s taxable income

12/4/2017

22

GROUP-TERM LIFE INSURANCE COVERAGE

Exclusion from income (IRC Sec. 79(a)) for The employer-paid premiums for group-term life insurance

coverage

Limitations The coverage is less than $50,000

Exclusion does not apply for employees in a qualified employee trust or annuity plan

Nondiscrimination rules apply; exclusion denied if found to be in favor of key employees

Some exceptions where coverage over $50,000 is not taxable

LODGING & MEALS ON BUSINESS PREMISES

Exclusion from employee income (IRC Sec. 119(a)) for the value of lodging & meals when Provided for the convenience of employer

Both lodging & meals are provided on business premises

Lodging – The employee is required to accept such lodging as a condition of employment

Exclusion does not apply if there is an option to accept additional compensation in lieu of meals & lodging

12/4/2017

23

LODGING & MEALS ON BUSINESS PREMISES

Examples of Qualified Lodging on Business Premises

Examples of Qualified Meals on Business Premises

University president is required to live in a house on

campus

Meals provided after hours for employees working overtime

& meals provided during training seminars

Apartments owned by a medical center & leased to

residents & nurses for below market prices

Hospital provision of a free cafeteria meal to substantially

all employees during each work day so that the

employees may be on call at all times

PAYMENTS FOR BUSINESS USE OF PERSONAL RESIDENCE

Payments for business use of a personal residence are generally taxable to the employee unless paid or reimbursed under an accountable plan

Example President of a university uses his home for a

business meeting of the university. Expenses reimbursed under an accountable plan as excluded from the president’s taxable income

12/4/2017

24

PROFESSIONAL DUES, PUBLICATIONS & MEETINGS

Employer costs excluded from income when connected with the job employees perform

Payments are excludable as working condition fringe benefits

Examples Professional dues

Cost of attending professional meetings

Cost of attending training sessions

Cost of membership in professional organizations that are not social or entertainment-oriented organizations

COMPANION TRAVEL

Employer provided spouse or dependent travel is generally taxable

Qualifies for exclusion as a working condition fringe benefit only if the employer Can adequately demonstrate that the

spouse’s, dependent’s or other accompanying individual’s presence on the employee’s business trip has a bona fide business purpose

If the employee substantiates the travel

12/4/2017

25

TRAVEL & ENTERTAINMENT REIMBURSEMENTS

Excluded from income as a working condition fringe benefit

Conditions Travel & entertainment expenses business

related

Costs are sufficiently documented

Reimbursements provided to the employee pursuant to an accountable plan

DISCRETIONARY SPENDING ACCOUNTS

Account or sum of money controlled by a person who

is not accountable to the organization under an

accountable plan

Payments are included in compensation regardless of whether they are personal in

nature

12/4/2017

26

SOCIAL CLUB DUES

Membership dues are taxable to employee regardless of whether club is tax-exempt

Includes dinner clubs/golf club memberships

Examples of payment Entrance fees

Periodic fees

Other amounts paid for using facilities

Where the exempt organization maintains membership for business purposes, any personal use is taxable to the employee unless personal use reimbursed by the employee or paid directly to the club

ACCOUNTABLE PLANS

If an employer maintains an accountable plan expense reimbursements are typically excluded from the employee’s income

Requirements Business connection

Substantiation

Return of amounts paid in excess of expenses pursuant to the rules in the regulations

12/4/2017

27

ACCOUNTABLE PLANS

Business Connection: Plan must provide reimbursements or advances only for business expenses that would otherwise qualify as a trade or business expense

ACCOUNTABLE PLANS

Substantiation Employees required to provide sufficient information to

satisfy the “business connection” of the expenditure

5 “W”s

What – The amount

When – Time, date, etc.

Where – Business location, destination, etc.

Why – Business purpose

Who – For entertainment expenses

12/4/2017

28

ACCOUNTABLE PLANS

Contemporaneous recordkeeping Not formally required but strongly suggested

Section 1.274-5T(c)(1) provides that written evidence has considerably more value than oral evidence alone & the value of written evidence is greater the closer in time it relates to the expenditure or use

12/4/2017

29

CONTINUING PROFESSIONAL EDUCATION (CPE) CREDITS

BKD, LLP is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.nasbaregistry.org.

The information contained in these slides is presented by professionals for your information only and is not to be consideredas legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered.

CPE CREDIT

CPE credit may be awarded upon verification of participant attendance

For questions, concerns or comments regarding CPE credit, please email the BKD Learning & Development Department at [email protected].

12/4/2017

30

Paige Gerich | 713.499.4600 | [email protected]

Jeanette Verrelli | 972.702.8262 | [email protected]

WHAT YOU SHOULD KNOW ABOUT FRINGE BENEFITS … · 12/4/2017 4 FRINGE BENEFIT EXCLUSIONS Specific Exclusion Provisions from IRC Sec. 132 No-additional-cost service Qualified employee

Documents