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1 © 2007 ME™ - Your Money Education Resource™ Retirement Planning and Employee Benefits for Financial Planners Chapter 13: Employee Benefits: Fringe Benefits
2 © 2007 ME™ - Your Money Education Resource™ Fringe Benefits A form of compensation where a benefit other wages Examples Meals and lodging furnished for the convenience of the employer. Athletic facilities furnished by the employer. Educational Assistance Programs. Dependent Care Assistance Programs. No additional cost services. Qualified employee discounts. Working condition fringe benefits
3 © 2007 ME™ - Your Money Education Resource™ Examples of Fringe Benefits (2 of 2) Qualified Tuition Reduction Plan. De minimis Fringe Benefits. Qualified Moving Expense Reimbursement. Qualified Transportation and Parking. Adoption Assistance Programs. Prizes and Awards.
4 © 2007 ME™ - Your Money Education Resource™ Taxation of Fringe Benefits The value of a fringe benefit provision is: Taxable as wages to the employee. Unless specifically excepted. A tax deduction for the employer.
5 © 2007 ME™ - Your Money Education Resource™ Nondiscrimination The provision of fringe benefits on a nondiscriminatory basis: Some fringe benefits require nondiscriminatory allocation to have exclusion from employee’s taxable income. Cannot discriminate to highly compensated employees. Exclusions are lost if fringe benefit is provided on a discriminatory basis.
6 © 2007 ME™ - Your Money Education Resource™ Meals Meals provided to an employee for the benefit of the employer. Value of meal excludable from employee’s gross income if the meals are furnished: For the convenience of the employer, and On the employer’s business premises.
7 © 2007 ME™ - Your Money Education Resource™ Lodging The value of lodging provided to an employee is excluded from his taxable income if: The lodging is furnished on the employer’s business premises, and The lodging is furnished for the convenience of the employer, and The employee is required to accept the lodging as a condition of his employment.
8 © 2007 ME™ - Your Money Education Resource™ Athletic Facilities Furnished by the Employer The value of on-premise athletic facilities provided by an employer to an employee is not included in the employee’s gross income if the facility is: Operated by the employer, and Located on the employer’s business premises, and Substantially all of the use of the facility is by employees of the employer, their spouses and their dependent children.
9 © 2007 ME™ - Your Money Education Resource™ Educational Assistance Programs Educational Assistance The employer’s payment of expenses incurred on behalf of an employee for education, or The employer’s provision of education to an employee. Up to $5,250 of expenses may be excluded from the employee’s gross income. Must be nondiscriminatory.
10 © 2007 ME™ - Your Money Education Resource™ Dependent Care Assistance (1 of 2) An employee may exclude a portion of the value of dependent care services provided by his employer from his gross income. Must be nondiscriminatory. Subject to many requirements. The services must allow an employee to work.
11 © 2007 ME™ - Your Money Education Resource™ Dependent Care Assistance (2 of 2) The services must be provided for one of the following qualifying persons: Dependent children under 13 years of age, Dependent children who are physically or mentally incapable of caring for themselves, or An employee’s spouse if the spouse is physically or mentally incapable of caring for himself. An employee may exclude up to the lesser of: $5,000 annually ($2,500 for MFS), or The earned income of the employee or his spouse.
12 © 2007 ME™ - Your Money Education Resource™ No Additional Cost Services An employee can exclude the value of services provided by an employer that do not cause the employer to incur any substantial additional cost or loss of revenue. Services or product must be offered to customers in the ordinary course of the employer’s business. Lost or foregone revenue is considered a cost and would NOT be considered a “no additional cost service.” Must be nondiscriminatory. Examples: Airline, movie theater, bowling alley.
13 © 2007 ME™ - Your Money Education Resource™ Qualified Employee Discounts The value of employee discounts is excluded from an employee’s gross income. The discount exclusion does not apply to real property, or investment property. Exclusion limit Service - 20% of the price of the service to nonemployee customers. Products – the employer’s gross profit percentage multiplied by the price the employer charges nonemployee customers. Nondiscrimination rules apply
14 © 2007 ME™ - Your Money Education Resource™ Working Condition Fringe Benefits Value of working condition fringe benefits provided by an employer are excluded from an employee’s gross income. Working Condition Fringe Benefit – Any property or service provided to an employee that enables the employee to perform his work and, if paid for by the employee, would be deductible as a trade or business expense. May be discriminatory. Examples: Car, Hotel, Travel.
15 © 2007 ME™ - Your Money Education Resource™ De Minimis Fringe Benefits Any property or service provided to an employee by an employer that is so small in value that it makes accounting for it unreasonable. De Minimis Meals De Minimis Transportation May be discriminatory.
16 © 2007 ME™ - Your Money Education Resource™ Qualified Moving Expense Reimbursement If an employer reimburses an employee for qualifying moving expenses, the employee can exclude the reimbursement from his gross income. Qualifying moving expenses: Expenses related to a qualifying move Must be deductible moving expenses
17 © 2007 ME™ - Your Money Education Resource™ Qualifying Move Move is to a new principal place of work at least 50 miles from the employee’s former home The employee needs to be either: Full-time in the new location for at least the next 39 weeks, or 78 weeks if self-employed.
18 © 2007 ME™ - Your Money Education Resource™ Deductible Moving Expenses Reasonable expenses for: Moving household goods and personal effects Traveling and associate lodging during the move ($0.24 per mile for 2009) Not deductible expenditures for: Moving Meals Storage Costs Pre-House Hunting Costs
19 © 2007 ME™ - Your Money Education Resource™ Qualified Transportation and Parking An employee may exclude the value of transportation benefits provided by his employer from his gross income. Transportation benefits $120 for 2009 per month for commuter pass, or $230 for 2009 per month for parking on or near the employee’s place of work $20 for 2009 per month for bicycle commuting expenses Provision may be discriminatory
20 © 2007 ME™ - Your Money Education Resource™ Adoption Assistance Programs An employee can exclude from his gross income the amount paid for, or expenses incurred by, his employer for qualified adoption expenses. The adoption assistance program must be in writing. Limited to an exclusion of $12,150 in 2009 per adopted child –phased out with AGI of $182,180 to $222,180 (2009). Must be nondiscriminatory.
21 © 2007 ME™ - Your Money Education Resource™ Awards and Prizes The value of certain prizes and awards given to employees by their employers may be excluded from the employee’s gross income. Length of service awards: property, not cash Not disguised compensation. Limited to the following: $400 per taxable year for all nonqualified plan awards $1,600 per taxable year for all qualified plan awards Qualified plan: does not favor top dogs
22 © 2007 ME™ - Your Money Education Resource™ Qualified Tuition Reduction Plans An employee may exclude from gross income any amount representing a qualified tuition reduction. Qualified tuition reduction. The amount of any reduction in tuition provided to an employee of an educational institution for education (below graduate level) for the employee, the employee’s dependent children, the employee’s spouse. Must be nondiscriminatory.
23 © 2007 ME™ - Your Money Education Resource™ Valuation Rules Applying to Fringe Benefits The general valuation rule: Fair market value of the fringe benefit. The cents per mile rule: 55 cents per mile (2009). The commuting rule: Unsafe conditions: each one way commute multiplied by $1.50. The Lease Value Rule: for company car Include value to lease car in income to extent used for personal purposes
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