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Chapter 4: Payroll Benefit Basics Payroll Source FPC Review Course 2014 Presented by: Mary Lou Sipple, CPP firstname.lastname@example.org. Chapter 4. 4.1 Fringe Benefits 4.2 Prizes and Awards 4.3 Company Vehicles 4.4 Group-Term Insurance 4.5 Deferred Compensation
Chapter 4: Payroll Benefit BasicsPayroll Source FPC Review Course 2014 Presented by: Mary Lou Sipple, CPP email@example.com
Fair Market Value of Non-Cash Compensation
In general, the fair market value of a fringe benefit is determined on the basis of all the facts and circumstances. Specifically, the fair market value of a fringe benefit is the amount the employee would have paid a third party to buy or lease the fringe benefit. When determining the value of the benefit, keep the following two statements in mind:
a determining factor.
** Inputting should occur as frequently as possible.
Inputting only at year end could reduce the employees income drastically and result in little or no net pay.
Example of Imputed Income
An employee has $50.00 included in income for non-cash taxable fringe benefit. The employee’s salary is $1,500.00 for the monthly pay period. A calculation of the employee’s taxes follows:
Noncash Fringe Benefits
Nonreportable Fringe Benefits
In most cases these benefits are not reported on W2. Benefits are so small in value it is unreasonable or administratively impractical to account for.
Section 132 – De minimis (minimal) fringe benefits include:
No-Additional Cost Services
Employees can take advantage of employer services with no tax consequences when the services are sold to customers as part of the employer’s regular line of business in which the employee works.
Qualified Employee Discounts
To be qualified, the property and services must be offered for sale to customers in the ordinary course of an employer’s line of business.
Working Condition Fringes
Work related items, when paid for by the employee, may be deducted from the employee’s individual tax return as a business expense. When these items are provided by the employer, they represent nontaxable compensation.
Use of Athletic Facilities
The facility must be located on the employer’s premises and operated by the employer. If the facility is made available to the public, the exclusion does not apply.
Employer Provided Retirement Advice
Qualified retirement planning services may be provided to an employee by an employer maintaining a qualified plan.
Qualified Moving Expense Reimbursements
An employer’s reimbursement or payment of an employee’s moving expenses is an excludable fringe benefit when the following rules are met:
Deductible Moving Expenses with No Dollar Limitation include:
Taxable Moving Expenses are reported on Form W-2 in Boxes 1, 3 and 5 but not in Box 12.
Qualified Moving Expenses paid directly to the employee are reported on Form W-2 in Box 12, Code P.
Prizes and Awards
Prizes and Awards are included in the employee’s taxable compensation.
Length of Service and Safety Awards may be excluded from income if the
awards follow certain guidelines.
For nonqualified plans, employees can receive an award
costing the employer $400 in a calendar year.
For qualified plans, all awards made to a single employee
cannot cost the employer more than $1,600 in a calendar
year, with the average cost of all individual awards to all employees
not exceeding $400.
Employee records should include:
Reporting Requirements – Personal Usage
3 Safe Harbor Methods
Once a method has been chosen, it MUST be used the entire time the employee has usage of the vehicle.
Annual Lease Method
REMEMBER: If the employee has the car less than a year and more than 30 days you MUST pro-rate to get the Annual Lease Value (ALV)
PRO-RATE FORMULA: ALV (number of days driven/365)
Cents Per Mile Method
Commuting Valuation Method
Group Term Life
Calculating the Value of Excess Group Term Life
EXAMPLE: Employee age 32
NOTE: Pretax contributions do not reduce the taxable value
After tax contributions cannot reduce the taxable value below $0
Dependent Group Term Life Insurance
Deferred Compensation Plans
401(k) – Qualified Plan
Cash or Deferred Arrangements or Salary Reduction Plans
A retirement savings program for tax-exempt
organizations such as Public Schools, Colleges and
Universities, Religious Groups and Public Charities.
Deferral of Wages for Governmental Employees
and some tax exempt organizations
NOTE: Get legal advice about how to treat Non-
Qualified Deferred Compensation
Benefit menu must include at least two benefits
allowing the employee to receive cash or one or
more qualified (non-taxable benefits).
Qualified (non-taxable benefits) continued:
Section 125 Tax Implications
Flexible Spending Accounts
Use it or Lose it
Uniform Coverage Requirement