Webinar Question Category BKD Response. Are safety shoes excludable? Accountable Plan Yes, as long as they re reimbursed under an accountable plan.

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1 Fringe Benefits Webinar Question Category BKD Response An employee has an annual CME allowance and uses part of it to purchase a computer, which will be used on the job. They can keep the computer when they leave employment. Is this taxable? Yes, the allowance is not paid as part of an accountable plan. The entire amount of the allowance is taxable. What needs to be included in an accountable plan document? If travel policy indicates what will be reimbursed, is that sufficient? An accountable plan must include the following requirements: The plan must only provide reimbursements for otherwise deductible business expenses; the plan must require substantiation of the reimbursed expenses, and any amounts paid to the employee that exceed the actual expense must be returned to the employer. For EE Exp reimbursement, is there a minimum amount needed to reimburse before a receipt is required? Yes, the IRS has formalized a $75 threshold for business expenses. Expenses exceeding $75 must include proof of the expenditure (receipt). Are safety shoes excludable? Yes, as long as they re reimbursed under an accountable plan. Is cellphone allowance taxable or excluded? Any amount paid outside of the accountable plan rules (no substantiation of expense) is taxable. Is using the federal per diem amount (or lower) acceptable for the reimbursement of business expenses under an accountable plan if the five Ws are documented without a receipt being required? Yes. Is reimbursing partial monthly cost of an employee s cellphone bill okay and nontaxable? Is there a limit? Any amount paid outside of the accountable plan rules (no substantiation of expense) is taxable. The employee would need to provide support of the business-related portion of the bill.

2 In most cases, employees submit receipts to substantiate their business expenses. However, if a receipt is missing in two or three instances, would you tax the employee for the missed receipts? Can you have a few missed receipts? Thanks! How do you determine a maximum allowance for cellphones? Accountable plan for travel and meals Is a description in the employee handbook adequate to document an accountable plan? We provide cellphone allowances for some department heads and other employees who are on-call at various times through the day. The allowance is paid each payroll, and we don t require documentation from the employee. Is this a taxable benefit? The IRS has formalized a $75 threshold for business expenses. Expenses exceeding $75 must include proof of the expenditure (receipt). If a receipt is missing, another method to document proof of the expenditure may be acceptable. Any amount paid outside of the accountable plan rules (no substantiation of expense) is taxable. Because the allowance is taxable, you should consider whether the allowance is reasonable on its own and in combination with the total compensation package for the employee. Yes, as long as the description in the employee handbook meets the requirements of an accountable plan. It must include the following requirements: The plan must only provide reimbursements for otherwise deductible business expenses; the plan must require substantiation of the reimbursed expense; and any amounts paid to the employee that exceed the actual expense must be returned to the employer. Any amount paid outside of the accountable plan rules (no substantiation of expense) is taxable. When the company charges an employee $3 a day for use of company vehicle, does this fringe benefit get any other addition to their W-2? No personal use by individual is allowed and only for on-call employees and not others. Auto use as a benefit Do you include gas and insurance as well as lease amount? Auto Auto No additional compensation is reportable to the employee under the Commuting Valuation Rule for vehicle use assuming the employee is not a control employee and the company has a written policy prohibiting use other than commuting. Personal use of an automobile may be computed using the Auto Leave Valuation Rule, the Vehicle Cents per Mile Rule or the Commuting Rule. Refer to Publication 15-B for more information on how to compute the fringe benefit using these methods. 2

3 Can you give a brief overview of how and when to report the personal use of business-provided vehicles? Are random drawing prizes taxable to employees? Auto Awards Personal use of an automobile may be computed using the Auto Leave Valuation Rule, the Vehicle Cents per Mile Rule or the Commuting Rule. Refer to Publication 15-B for more information on how to compute the fringe benefit using these methods. Unless the prize is noncash/nongift card and qualifies as de minimis, the value of the prize is taxable. For employee awards given by organizations that have been in existence less than five years, would there be exception for a nontaxable fringe benefit (since the employee would not have been employed for five years or more)? What is required to make paid cellphone service for certain employees totally tax free? Can you address cellphones? Under IRS Notice , employer-provided cellphones are excluded as a taxable benefit. True? What about personal use of employerprovided cellphones? A hospital pays for an employee to stay at a hotel to keep them in town so they can staff during dangerous weather. Is that taxable? It is not on site. Awards Cell Cell Cell Convenience Meals If the award is not considered a de minimis award, it must be either a safety award or a length-of-service award to be excludable. Length-of-service awards are not excludable if given during the employee s first five years of employment. In fact, the Tax Cuts and Jobs Act (TCJA) clarifies that cash and gift cards do not qualify for employee achievement awards. You should document whether provision of the cellphone it is for a noncompensatory business purpose (working condition fringe benefit) and that the employee has to be available to speak to clients and customers at all times when away from the office, as well as speak to customers outside of normal work hours. The level of cell service provided must be reasonable for the expected use. Do not provide international coverage if the employee is not expected to need international coverage to speak with clients and customers. Correct; personal use of employerprovided cellphones is excludable as a de minimis fringe benefit as long as the employee is required to be available to speak with clients or customers when away from work. Personal use of employer-provided cellphones is excludable as a de minimis fringe benefit as long as the employee is required to be available to speak with clients or customers when away from work. No. This is a working condition fringe benefit provided for the convenience of the employer. 3

4 If you provide meals for employees working overtime, can it be selective or does it need to be applicable to all employees working overtime? I thought I had read somewhere that the IRS was getting more restrictive on the meals provided piece. We are looking at giving meals to employees across the board. Not for OT shifts, etc. Would those still qualify for the exclusion? Are meals provided off site for employee appreciation taxable? Company picnics/ Christmas parties? Convenience Meals Convenience Meals Currently, meals for the convenience of the employers can t be compensatory in nature and should cover all employees. The TCJA imposes 50% deduction limitation on expenses of the employer associated with providing food and beverages to employees for the convenience of the employer (as opposed to 100% deduction). Currently, if the meals are provided on the business premises and are for the convenience of the employer, the benefit is excluded. You will need to review each class of employee to determine what is convenient, e.g., a nurse is available for patient emergencies by staying on site. The TCJA imposes 50% deduction limitation on expenses of the employer associated with providing food and beverages to employees for the convenience of the employer (as opposed to 100% deduction). No, excludable as a de minimis benefit. On de minimis items, how do we define low FMV items? The IRS does not specify a fair market value for this purpose. The determination is based on facts and circumstances. If we give some employees a gift (jacket) worth $65 each, is this taxable? What is considered a holiday gift with a low FMV specifically, what is considered low FMV? It depends on a number of variables. Since you are only giving the jacket to a few employees, it is likely not a de minimis fringe benefit, as you can easily account for the item, which would be taxable. If the jacket is given to the employee as an award in a meaningful presentation for length of service (more than five years) or safety, the value may be excludable from income. The IRS does not specify a fair market value for this purpose. The determination is based on facts and circumstances. Do holiday turkeys fall under de minimis? Yes, as long as a turkey is given. Cash to purchase a turkey is taxable. 4

5 If the company is providing clothing as a Christmas present to EE and their guest at the company Christmas party, are both items taxable to the EE? Do movie passes count as de minimis similar to the turkey coupon? Holiday gifts are excludable as a de minimis fringe benefit. The company would need to evaluate the specific facts and circumstances to determine if this qualifies as a de minimis fringe benefit. Yes, as long as the pass is only redeemable for the movie. We have an appreciation program do we need to tax movie tickets valued at $8 or car wash vouchers valued at $25? With respect to holiday gifts with a low FMV, what constitutes or what is the definition of low FMV? Is there a predetermined set dollar amount that defines low FMV? No, as long as the movie pass and car wash vouchers are only redeemable for the movie or car wash, they should be considered a de minimis benefit. The IRS does not specify a fair market value for this purpose. The determination is based on facts and circumstances. We offer staff a 50% discount on sending their kids to our summer camps. Is this something we would need to include the value of on their W-2 at year-end? If a medical doctor provides surgical procedures to all his employees and this benefit is in the employee handbook as a benefit, can this procedure be done as nontaxable to the employee? In the webinar you discuss only a 20% discount. Discount Discount The amount of the discount in excess of 20% of the amount charged to the general public should be included as taxable wages. The amount of the discount in excess of 20% of the amount charged to the general public should be included as taxable wages. Modify the employee handbook as needed. You mentioned education classes for sports, games, and hobbies are not excluded and therefore should be taxable. We are a college, and employees can take classes for free. In that case, could they still be excluded for taxes? Because the benefit is provided to employees of a higher education institution, assuming the class is below graduate level, the benefit is currently not taxable. My nonprofit employer pays $1,000 education assistance per year to their employees. They report it on employee s W-2, is that incorrect? If they don t report it on their employee s W-2, then where do they report it? Only qualified educational assistance may be excluded from Form W-2 reporting. You will need more information to determine if the $1,000 payment meets the definition of a qualified educational assistance payment. 5

6 If a secondary teacher with a bachelor s degree receives tuition assistance for courses toward a master s degree in education, is the assistance a working condition fringe benefit if employee will receive an increase to their wage base upon earning a master s degree? During their probationary period, employee must demonstrate satisfactory progress toward a master s degree. The reimbursement appears to be an educational requirement for the current position and/or will qualify the employee for a new position or salary level, which is taxable. What about paying for a CPA review course to help the person pass the CPA exam is that taxable income? Our plan requires a six-month wait for education reimbursement. Can reimbursement be held for a period greater than six months in order to avoid exceeding the $5,250 within a given year? Is payment for study materials or exams for certifications ever excludable from income? Example is CPA exam and materials. If an employee at a private company receives funds to take the CPA exam, they are now eligible for a new job (public accounting). Can this fall under education exclusion? Is education assistance taxable to an employee who is a nurse aide working on an RN degree? For educational assistance programs, what is meant by there may not be an alternative program available to employees? Can you provide an example? If passing the CPA exam is needed to meet the minimum requirements of the job or will qualify the employee for a new trade or business, the benefit is taxable. If passing the CPA exam is required to keep their present salary/job status or maintains/improves skills required to do current work, the benefit is not taxable. No, the $5,250 limitation applies to educational expenses paid or incurred during the year. Withholding or deferring payment will not avoid exceeding the $5,250 limitation. If passing the CPA exam is needed to meet the minimum requirements of the job or will qualify the employee for a new trade or business, the benefit is taxable. If passing the CPA exam is required to keep their present salary/job status or maintains/improves skills required to do current work, the benefit is not taxable. You can exclude up to $5,250 of educational assistance you provide to an employee under a qualified educational assistance program from the employee s wages each year. Several plan requirements must be met to qualify as a qualified educational assistance plan. The written plan document cannot provide any alternative benefits other than education benefits. If we have a VP that is going back to school to get their doctorate and we have reimbursed tuition over the $5,250 allowed do we need to tax as income? Yes, assuming the reimbursement is under a qualified educational assistance plan, only the reimbursement in excess of $5,250 is taxable. 6

7 What are the general components of a written plan? Is it enough to have a paragraph in the employee handbook mentioning that educational assistance is available? We offer tuition reimbursement to employees. Is this only excluded for graduate level and below, or can doctorate level also be excluded? A written plan should be detailed enough to discuss the benefit and provide details of when it is available to the employees. The handbook is sufficient as long as the additional verbiage is present. To qualify as a qualified educational assistance plan, the plan must be written, not offer any other benefits instead of education, assistance must not exceed $5,250 for all employers of the employee combined and must not discriminate in favor of highly compensated employees. As long as the qualified educational assistance plan requirements are met, a doctorate also would be excluded. For tuition, what if an employee can attend another state university and get tuition waiver do we need to track the $5,250 at the other university for our employee? Likewise, we may need to provide amounts to other universities for their employee attending our university. Thoughts? We need more details to respond, but in general, the employee must take into account all reimbursements received from employers for educational assistance. The $5,250 cap applies to the aggregate amount of educational assistance received from all employers. Just to confirm, ANY gift card given to an employee as an incentive or reward (example: a $25 Walmart card) should be included in taxable income? We pay research incentive payments for participants in clinical trial-type studies. We either pay by gift card or cash. If one of our employees participates in the clinical trial, but it is not as a condition of their employment, is that payment taxable to them? Yes, gift cards are considered cash. Cash and gift cards given to employees are always taxable and subject to federal income tax (FIT) and Federal Insurance Contributions Act (FICA) withholding. Yes, gift cards are considered cash. Cash and gift cards given to employees are always taxable and subject to FIT and FICA withholding. My boss interrupted while you were talking about traditional retirement awards presented upon completion of a lengthy term of service. Are gift cards as retirement gifts excludable? No, gift cards are considered cash. Cash and gift cards given to employees are always taxable and subject to FIT and FICA withholding. How does a church handle a $25 gift card to Sunday school teachers as appreciation token at year-end? Giving them a 1099? Payment of cash and/or gift cards is always taxable compensation. If total payments (including the gift card) to the teacher exceeds the reporting threshold for Form 1099 reporting, Form 1099 should be issued for the total amount that includes the gift card received. 7

8 Are cash drawings at a Christmas party where every employee is eligible taxable? Is a $25 gift card given to all employees as a gift taxable for income taxes as well as FICA? I would assume (to be excluded) the length of service awards cannot be gift cards, correct? Do employee-paid life insurance premiums for spouse and dependent coverage qualify as an exclusion, or are they a taxable benefit to the employee? We are under a multi-employer plan (electric co-op under NRECA). An employee goes somewhere for a business purpose and has a meal on the return trip. If it is not an overnight trip, is that meal taxable? Are meals during a day trip (no overnight stay) excluded from income as well? Our company reimburses our employees for meals when they are out of town overnight and the reimbursement is done from the receipts they provide. Do we need an accountable plan? Insurance Meals Meals Meals Yes, gift cards are considered cash. Cash and gift cards given to employees are always taxable and subject to FIT and FICA withholding. Yes, gift cards are considered cash. Cash and gift cards given to employees are always taxable and subject to FIT and FICA withholding. Yes, gift cards are considered cash. Cash and gift cards given to employees are always taxable and subject to FIT and FICA withholding. Group-term life insurance coverage paid by employer for the spouse or dependents of an employee may be excludable from income as de minimis fringe if the face amount is not more than $2,000. Yes, the IRS specifically requires an overnight stay. But, if there is a business purpose (meeting with a client or prospect) and as long as the meal is reimbursed under an accountable plan with proper substantiation as to the business purpose of the meal, the meal can be excluded. No, the IRS specifically requires an overnight stay. But, if there is a business purpose (meeting with a client or prospect) and as long as the meal is reimbursed under an accountable plan with proper substantiation as to the business purpose of the meal, the meal can be excluded. Yes. If an employer provides for the reimbursement of the cost of a meal (lunch) when an employee attends a seminar more specifically a day-long seminar that is not on the premises of the employer, is this reimbursement taxable? Meals No, as long as the meal is directly related and necessary for attending the meeting and the expense of the meeting is directly related to the employer s trade or business. 8

9 We are a university, and we have admissions reps who travel to recruit students. At times, they will travel for business for an extended work day but do not stay overnight out of town. For example: A rep may leave our campus at 7 o clock in the morning to recruit students and return to campus at 9 o clock that evening. Do we need to tax that employee for the value of his/ her lunch and dinner if the university pays for them? At times, it s more cost effective for the university our reps to do this but we feel it also penalizes the reps because their paycheck is lower due to the taxes withheld. Please advise! Meals Yes, the IRS specifically requires an overnight stay. But, if there is a business purpose (meeting with a client or prospect) and as long as the meal is reimbursed under an accountable plan with proper substantiation as to the business purpose of the meal, the meal can be excluded. What about the membership dues for Rotary and Lions Club? Social club dues would be a taxable benefit. Where do we find information concerning when to report the taxes? IRS Publication 15-B. Is job placement assistance taxable if it s provided for employees due to a reorganization of the business? Yes, as a working condition fringe benefit. Please review any taxability of health insurance. Disability insurance premium payments on behalf of 2% or greater shareholders I believe those are taxable compensation (including for FICA and Medicare purposes). Do you have anything supporting a contrary position on that? Employer-provided health insurance benefits are generally excluded from the income of employees. See Publication 15-B for more information. This is generally the case for 2% or greater shareholders of an S corporation. Group-term life What if value per IRS rules is more than actual cost to employer? Can we use the lower amount as the taxable amount? IRS bases amount on age, while we pay based on salary. So two employees with same salary are taxed based on their age, not on their benefit. Value of group-term life insurance must be computed using the IRS tables. 9

10 We are providing some monetary assistance to an employee who is undergoing gastric bypass surgery This would be a taxable fringe benefit, correct? Correct. Why is 10% of PTO forfeited when sold back (cashed in)? Not enough information to respond. What are the potential penalties for employers for failing to properly report taxable fringe benefits? Does it matter if you re an NFP versus a for-profit? Have you ever seen the 50,000 life insurance level being adjusted for inflation? Failure to report taxable fringe benefits requires payment of the unpaid tax and revised W-2 and 941 filings, which will incur penalties and interest. If the IRS discovers the error, additional actuaryrelated penalties might apply. For exempt organizations, failure to properly report fringe benefits could result in an excess benefit transaction with additional penalties under the intermediate sanctions rules. Unable to speculate. What changes in the taxability of fringe benefits do you anticipate with the new proposed tax legislation? Our employer provides electricity to one employee s electric automobile. We built an electric plug-in station to accommodate this employee. Is this a taxable fringe benefit? The TCJA contains a provision that disallows a deduction for expenses associated with providing any qualified transportation fringe benefits to employees, except as necessary for ensuring the safety of an employee. Any deduction for expenses incurred for providing transportation (or payment or reimbursement) for commuting between the employee s residence and place of employment is disallowed (can no longer exclude qualified bicycle commuting reimbursements). Moving expenses (except for active-duty members of the armed forces) are no longer deductible or excludable from taxable income. BKD plans to host a follow-up webinar in late May to include the effect of recently enacted tax reform in this area. Is the plug-in station available to all employees who drive an electric vehicle? May need more information to respond. 10

11 If a fringe benefit is taxable and an employee sends a check to the employer for that benefit, how is that treated? How do you report taxable income to a board member who is not being paid by the organization? If cellphones are a fringe benefit and should be included on the W-2, how are the taxes on that benefit handled? What about health insurance premiums paid for certain individuals but not for all employees? Is the premium amount taxable to the few employees? Should you send a revised W-2 in the current year for a prior-year error? How far can you go back? If an employee is reimbursed for electricity at an off-site workshop used for business purposes, is it reportable on their W-2? For moving expenses, can you please clarify if we can exclude reimbursements to employees for moving expenses only? Do we need to pay the moving company directly? Moving Taxable fringe benefits repaid by the employees should not be reported as wages to the employee. Treat as an advance and repayment. If total payments exceed the reporting threshold for Form 1099 reporting, Form 1099 should be issued for the total amount. Like other nonmonetary fringe benefits, it might be necessary to gross up the value of the benefit so the net amount is equal to the taxable value. Employer-provided health insurance benefits are generally excluded from the income of employees. See Publication 15-B for more information. Yes, you should revise the W-2 for the year the benefit was incurred for any year open under the statute of limitations (generally three years from the date the employeefiled Form 1040). No, the benefit should be considered a working condition fringe benefit and be reimbursed under an accountable plan. An accountable plan must include the following requirements: The plan must only provide reimbursements for otherwise deductible business expenses, and the plan must require substantiation of the reimbursed expense and any amounts paid to the employee that exceed the actual expense must be returned to the employer. Method of payment dictates reporting on Form W-2, box 12. As long as the payments are for qualified moving expenses, the benefit is not taxable currently. However, the tax bill suspends income exclusion for all moving expenses except for active-duty members of the armed forces. Effective for tax years beginning after December 31, 2017, and before January 1,

12 If the employer reimburses the employee directly for any moving costs that typically would be excludable, then is it taxable to the employee? We offer a Relocation Allowance to employees which is paid in their first check and fully taxable. Would this amount need to be reported in Box 12 Code P? So a higher ed institution cannot reduce tuition on a graduate degree without reporting on the W-2? Or it just can t be Ph.D.-level degree? Moving Moving N/A Method of payment dictates reporting on Form W-2, box 12. As long as the payments are for qualified moving expenses, the benefit is not taxable currently. The tax bill suspends income exclusion for all moving expenses except for active-duty members of the armed forces. Effective for tax years beginning after December 31, 2017, and before January 1, Method of payment dictates reporting on Form W-2, box 12. As long as the payments are for qualified moving expenses, the benefit is not taxable currently. The tax bill suspends income exclusion for all moving expenses except for active-duty members of the armed forces. Effective for tax years beginning after December 31, 2017, and before January 1, N/A I volunteer for a religious organization, which directly pays clergy a housing allowance (not accountable) and contributes an annual amount to retirement (paid directly to clergy). Report as taxable? I ve seen churches that give very generous gifts to their retiring pastors one was gifted a new room on their home. These are done at retirement noncompensatory. Is this taxable? Other issues? Member contributions for this are they deductible or considered personal gifts? Would ambulance transport be a no additional cost benefit if the employer does not charge the employee for this? Need Help Need Help No Additional Cost The housing allowance is excludable from income, but the retirement is taxable. The housing allowance should be specifically designated as such before the payment is made. The allowance should not exceed the fair rental value of the home (including furnishings and utility costs). Documentation supporting the purpose of the payment and fair rental value of the home should be kept. INFO Donor s intent was to benefit an individual recipient not the charitable organization as a whole. Contribution was earmarked for specific person (N/D to donors). Also, sounds like a taxable gift to the pastor, since it was made by the church and not the individual members. No, the ambulance would be incurring additional costs to operate the ambulance to transport the employee. This would fall under employee discounts. For the benefit to be excludable, the discount can be no more than 20% of the amount charged to the general public. The amount in excess of 20% is taxable. 12

13 So what if the university charges employees for use of the fitness center? Would there be the 20% discount limit since it may be excluded under the no additional cost rule? No Additional Cost The benefit to them should be excluded under the no additional cost rule as long as additional staffing is not needed to accommodate the additional use or you are operating outside of normal hours. If the facility is open specifically for the employees use, the benefit would be taxable. The 20% rule only applies to discounts. If you charge the employees for use of the fitness center, the charge can be no less than 20% of the amount charged to the general public. Please note, the recently enacted TCJA could affect your situation. These responses take the provisions within the TCJA into consideration; however, further guidance from the IRS on how these provisions will be interpreted may affect the future accuracy of these responses. We are under no obligation to update the responses if such changes occur. 13