FEDERAL STATE AND LOCAL GOVERNMENTS TAX EXEMPT/ GOVERNMENT ENTITIES: FSLG Mission: FRINGE BENEFITS

Transcription

1 FEDERAL STATE AND LOCAL GOVERNMENTS FRINGE BENEFITS TAX EXEMPT/ GOVERNMENT ENTITIES: Federal, State and Local Governments Indian Tribal Governments Tax Exempt Bonds 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 1

2 TOPICS: FRINGE BENEFITS (Employee Reimbursements) ACCOUNTABLE PLANS EMPLOYEE VS. INDEPENDENT CONTRACTOR WHAT IS A FRINGE BENEFIT? FRINGE BENEFITS: ANY PROPERTY, SERVICE OR CASH (Other than Salary, Provided by Employer) TAXABLE UNLESS EXCLUDED SPECIFICALLY BY LAW Example: Medical Premiums IRC 106 2

3 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. Non-Taxable Fringe Benefits: No additional cost service Qualified employee discounts Working condition fringe De minimis fringe Qualified transportation expenses Qualified Moving Expense Reimbursements 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 3

4 ACCOUNTABLE PLAN Business Connection Adequate accounting by employee in reasonable time period Excess reimbursement returned in a reasonable time period NON-ACCOUNTABLE PLAN: DOES NOT MEET ALL 3 REQUIREMENTS FOR AN ACCOUNTABLE PLAN BENEFIT IS FULLY TAXABLE WHEN PAID NON-TRAVEL FRINGE BENEFITS: Clothing Equipment Professional Licenses Awards Bonuses 4

5 AWARDS ARE TAXABLE CASH PRIZES OR AWARDS are always taxable PERFORMANCE AWARDS are always taxable NON-CASH: Use Fair Market Value 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. REMEMBER: 5

6 TRAVEL-RELATED FRINGE BENEFITS: Per Diem Allowances for lodging, meals and/or incidentals for business related travel while away from home MEAL ALLOWANCES WHILE TRAVELING ON BUSINESS: MEALS AWAY FROM HOME: OVERNIGHT Accountable Plan - Not taxable NOT OVERNIGHT Taxable as wages Meals with business meetings - NOT taxable if: clear business setting * directly related * Employer buys you lunch - Taxable as wages * 6

7 AUTOMOBILE EXPENSES: EMPLOYEE CAR USED FOR EMPLOYER S BUSINESS: 2010 Federal Mileage Rate - $.50 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 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 non-business travel 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 7

8 Personal Use: IF NO RECORD KEPT: Value of ALL use is taxable IF RECORD KEPT: Only Personal Use is taxable VALUING PERSONAL USE - THREE RULES: Automobile Lease Valuation Rule* Cents-Per-Mile Rule Commuting Rule GENERAL RULE: Lease Valuation Rule Compute Personal Use Determine what employee would pay to lease auto (FMV) Multiply FMV by % of personal use 8

9 SPECIAL ACCOUNTING RULES (Automobiles): Employer can elect to defer withholding Employer can withhold at 28% 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 EMPLOYEE OR INDEPENDENT CONTRACTOR? Determine Worker Status Fringe benefit rules apply Accountable Plan rules apply Report payments on information return: W-2 for Employee 1099-MISC for Independent Contractor The IRS looks at THREE FACTORS TO DETERMINE WORKER STATUS: BEHAVIORAL CONTROL FINANCIAL CONTROL RELATIONSHIP OF PARTIES 9

10 BEHAVIORAL RELATIONSHP: IF the firm provides instructions: on how to do the job, what hours to work, what days, etc., the worker is most likely an employee. FINANCIAL CONTROL: If the firm provides an office, all office supplies, computer and other business equipment to the worker, the worker is an employee. RELATIONSHIP OF THE PARTIES: If the firm provides benefits: health insurance, life insurance, retirement benefits, 40l(k) plan, 403(b) the worker is an employee. 10

11 INDEPENDENT CONTRACTOR Offers services to public Operates own business Bills for services Doesn t have to personally perform work COMMON MISCONCEPTIONS: EMPLOYEES CAN BE: Part-time workers Temporary workers Probationary period Workers who say they are Independent Contractors REPORTING FOR EMPLOYEES: All Compensation: W-2 Awards Backpay Bonuses Severance Pay Taxable Fringe Benefits 11

12 REPORTING FOR INDEPENDENT CONTRACTORS: ALL COMPENSATION FOR SERVICES: On 1099-MISC If Non-Accountable Plan: Include Reimbursed Expenses on 1099 NEED MORE INFORMATION? CALL US: Steve C. O Brien Federal State and Local Government Specialist IRS CONTACTS: IRS INFORMATION IRS PUBLICATIONS INTERNET: 12

13 ADDITIONAL NUMBERS: EXEMPT ORG. /EMPLOYEE PLANS HOTLINE: FOREIGN (ALIEN) QUESTIONS: INFORMATION RETURNS QUESTIONS: THANK YOU! 13