1 EMPLOYMENT TAX SEMINAR FOR TASBO ANNUAL CONFERENCE Tax Exempt/Government Entities Division Federal, State and Local Governments
2 FSLG Mission: To provide government entities with top quality service by helping them understand and comply with applicable tax laws, and to protect the public interest by applying the tax laws with integrity and fairness to all
3 Topics New Developments Taxability of Fringe Benefits Questions
4 New Developments Status of IRC 3402(t) (TIPRA) IRS Notice 2011-28 (Affordable Care Act- Employer Paid Medical Costs) IRS Notice 2011-64 (Voluntary Classification Settlement Program) IRS Notice 2011-72 (Treatment of Cell Phones)
6 FRINGE BENEFITS: ANY PROPERTY, SERVICE OR CASH (Other than Salary, Provided by Employer) TAXABLE UNLESS EXCLUDED SPECIFICALLY BY LAW –Example: Medical Premiums IRC 106
7 WHAT TO DO? ¶ Identify specific benefit provided to employee(s); · Determine if benefit is excluded by law; and ¸ Determine if benefit is fully taxable, or only partially.
8 Nontaxable Fringe Benefits: No additional cost service Qualified employee discounts Working condition fringe De minimis fringe Qualified transportation expenses Qualified Moving Expense Reimbursements
9 TAXABLE FRINGE BENEFITS: INCLUDE in Employee’s wages and on W-2 (Never on 1099- MISC) Subject to Federal Withholding, Social Security and Medicare Even if benefit is received by/for spouse or child of employee
10 ACCOUNTABLE PLAN Business Connection Adequate ‘accounting’ by employee in reasonable time period Excess reimbursement returned in a reasonable time period
11 NONACCOUNTABLE PLAN: DOES NOT MEET ALL 3 REQUIREMENTS FOR AN ACCOUNTABLE PLAN BENEFIT IS FULLY TAXABLE WHEN PAID
13 AWARDS ARE TAXABLE CASH PRIZES OR AWARDS are always taxable PERFORMANCE AWARDS are always taxable NON-CASH: –Use Fair Market Value
14 AWARDS EXCEPTIONS: Certain Awards transferred to Charities –Pulitzer, Nobel Peace Prize Certain Employee Achievement Awards –Length of Service, Safety - Not Cash Nominal Holiday/Special Occasion Awards –Coffee mugs, plagues, etc.
15 REMEMBER: taxableIf the benefit is taxable: –Determine the Value of the benefit – Include it in Wages and W-2
16 TRAVEL-RELATED FRINGE BENEFITS: Per Diem Allowances –for lodging, meals and/or incidentals –for business related travel –while away from home
17 MEAL ALLOWANCES WHILE TRAVELING ON BUSINESS: MEALS AWAY FROM HOME: –OVERNIGHT Accountable Plan - Not taxable –NOT OVERNIGHT Taxable as wages
18 NOT MEAL ALLOWANCES WHEN NOT TRAVELING: Meals with business meetings - – NOT taxable if: clear business setting directly related Employer buys you lunch - – Taxable as wages
19 AUTOMOBILE EXPENSES: EMPLOYEE CAR USED FOR EMPLOYER’S BUSINESS: –2011 Federal Mileage Rate - $.51 At this rate or less: Non-taxable to Employee Excess over this rate: Taxable to Employee - only the excess amount If Employee chooses not to get reimbursed, cannot claim on personal tax return. Substantiation required
20 SUBSTANTIATION: Employee reports to employer: –Date, Purpose, Place of each trip –Mileage ‘at or near the time’ incurred –Examples: Diary, log, trip sheet, expense statement or similar record –Commuting is always taxable - it is nonbusiness travel
21 EMPLOYER-PROVIDED VEHICLE: HOW DOES EMPLOYEE ACCOUNT FOR PERSONAL USE? Personal Use is taxable Verified Business Use is not taxable Employee can reimburse Employer for personal use
22 Personal Use: IF NO RECORD KEPT: – Value of ALL use is taxable IF RECORD KEPT: – Only Personal Use is taxable
23 VALUING PERSONAL USE - THREE RULES: Automobile Lease Valuation Rule* Cents-Per-Mile Rule Commuting Rule
24 GENERAL RULE: Lease Valuation Rule Compute Personal Use Determine what employee would pay to lease auto (FMV) Multiply FMV by % of personal use
25 Commuting Rule Commuting rule can apply if: –Vehicle is owned or leased by employer –Vehicle is provided for business use –Employer requires the employee to use the vehicle –Employer has written policy prohibiting person use (other than commuting) –Employee doe not use the vehicle for other than de minimis personal use –If criteria are met, the taxable benefit is $1.50 each way for every day worked.
26 Commuting Rule (Cont’d) Cannot be used for a “Control Employee” – an elected official or an employee with compensation at Executive Level V ($145,700 in 2011). –Control Employees must use “General Valuation Rule” or “Special Automobile Valuation Rules” In short, they have to account for their personal vs business mileage
27 Cents Per Mile Rule Employer must reasonably expect vehicle will be regularly be used in the business, or vehicle is driven at least 10,000 miles in the calendar year and used primarily by employees, and Vehicle does not have a FMV greater than $15,300 for 2011 (indexed for inflation)
28 SPECIAL ACCOUNTING RULES (Automobiles): Employer can elect to defer withholding Employer can withhold at 25% November and December benefits may be treated as paid in next year Employer can elect not to withhold FIT –Employer must tell employee –Employer includes in wages/ W-2
29 Qualified Nonpersonal Use Vehicles A qualified nonpersonal use vehicle is excludable from taxable wages if –the employee is not likely to use the vehicle more than minimally for personal purposes because of its design –General list of qualified non-personal use vehicles typically used by cities and towns Clearly marked police, fire, and public safety officer vehicles [Reg 1.274-rT (k)(5)] Umarked vehicles used by law enforcement officers if the use is officially authorized [Reg 1.274-5T(k)(6)] Any vehicle designed to carry cargo with a loaded gross vehicle weight over 14,000 pounds
30 Qualified Non-Personal Use Vehicles (Cont’d) Modified Pick-up Trucks –Considered a qualified non-personal use vehicle (and therefore non-taxable) if it has been specially modified so it is not likely to be used more that minimally for personal purposes. Vehicle qualifies if it is: Permanently affixed with decals or special paint associated with your community AND meets either of the following: –Equipped with at least one of the following »Hydraulic lift gate »Permanent tanks or drums »Permanent side boards or panels that materially raise the level of the sides of the truck bed »Other heavy equipment –It is used primarily to transport a particular type of load.
31 Work Clothes, Uniform Allowances and Reimbursements Excluded if: –Specifically required as a condition of employment AND –Not worn or adaptable to general usage as ordinary clothing –Rules of Accountable Plan must be met
32 Safety Equipment Costs/Reimbursements are excludable if: –The equipment helps the employee perform his or her job in a safer environment.