Fringe BenefitsLuanne Brown, CPP

Director of Payroll Services Grand Valley State University

Why is it Taxable

I have to pay tax on that?

That’s stupid I don’t want to pay tax.

Don’t tax that.

Keep the gift card I refuse to pay tax on it.

Show me the IRS regulations.

No, I do not work for the IRS or the DOL

Luanne Brown, CPP

From Long Island to Florida to Michigan – Asking Why every step of the way.

First Job in Payroll was 1980 something (1988) (It was love at first sight)

Sports Academy, Wholesale Art Dealer, Advertising, Manufacturing, Higher Ed.

Currently the Director Of Payroll Services for Grand Valley State University (11 Years)

Became CPP in 2004

Survivor of DOL, IRS and ICE audits

Local Chapter involvement since 1998 – Have held all positions over the years.

Michigan Statewide Planning Committee – Current Chair

National Member since 2002

Active on many sub-committees, Board of Advisor 2012-2014, Vice President, Board of Directors 2015-2018

National Speakers Bureau.

IRS Process

You will notified by Mail

Respond Immediately

Form Team

Designate one spokesperson

Start reviewing your data before IRS arrives on site.

Provide data to IRS as requested don’t play games.

4

Why Are You Being Audited

Your Website

Late or Missing 941’s

Other Audits (DOL, Immigration, State)

High Risk Industry

Trucking

Farming

A big change from year to year

3,000 w2’s last year, 300 this year?

No W2’s Filed

Big change in 1099 or 1042S forms

5

What is NOT a taxable Fringefor Federal Tax Withholding.

Items Exempt from Federal Withholding

**With Limits

Accident and Health Benefits

Achievement Awards**

Adoption Assistance**

Athletic Facilities**

De Minimis Benefits**

Dependent Care Assistance**

Educational Assistance**

Employee Discounts**

Employee Stock Options**

Employer Provided Cell

Phone**

Achievement/Service

Awards Taxable Exclusions

The exclusion does not apply to awards of cash, cash equivalents, gift certificates, or other intangible property such as vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds and other securities these are taxable.

Specific Length of Service (5 yr. increments)

Safety award must be specific

$400 limit to value for each award

$1600 limit in one year to one employee

Adoption Assistance

Must have written plan

Cannot favor shareholders or owners

No discrimination is allowed

Less than 5% of the assistance may go to shareholders/owners owning more than 5% of the stock, capital, profits during the year.

IRS limit for 2016 $13,460

Excluded from Federal Income Tax Withholding

NOT excluded from Social Security and Medicare

Report in Box 12 Code T on W2!

Athletic Facilities

Can exclude from wages if athletic facilities are

located on-premises and is used primarily for

your employees, their spouses and their

dependent children.

Be careful! If you are selling memberships the

value may become taxable to your employees

De Minimis BenefitsExample of Items that are Non-Taxable

Occasional personal

use of company copy machine, phones,

laptops.

Holiday gifts of a low

fair market value

Sweatshirt, beach

chair, weather vane

Occasional parties and

picnics

Occasional tickets for

theater or sporting

events

Company provided

coffee and tea.

Working Condition Fringe

Business use of company car

or airplane

Chauffeur or bodyguard for

security

Professional Association Dues

and Membership Feeds

*** Group Legal Services

are TAXABLE!

Business Subscriptions

Job-related education

Goods used for product

testing by employees

Outplacement services

*** Tax preparation services

are NOT a working condition

fringe and is taxable.

Educational Assistance

Job-Related (Specific – Non-Taxable)

Non Job-Related (Must have a Plan)

No Discrimination, limited for owners, not part of cafeteria plan. Notification of plan, tied to grades

$5,250 exclusion textbooks included

Does NOT include:

Tools or Supplies

Lodging

Meals

Transportation

**Special Rules apply to Colleges and Universities

Employee Discounts

Can exclude if following criteria is met

Discount on service = cannot exceed 20% of the price

you charge nonemployee customers for the service

Discount on merchandise or other property your gross

profit percentage times the price you charge

nonemployee customers.

Watch out for discounts given to highly compensated

employees!

Employee Stock Options

Incentive Stock

Employee Stock Purchase Plans

Non-statutory/Nonqualified Stock Options

*** Internal Revenue Code 421, 422, and 423

Employer Provided Cell Phone

Must be provided for NONCOMPENSATORY

business purposes.

Contact at all times for work related issues.

Speak with customers/clients while away from

office.

If provided to promote goodwill, boost morale or

attract prospective employees the value is

TAXABLE

Club Memberships

Examples of Clubs:

Country Clubs, Golf an Athletic Clubs, Airline Clubs, Hotel Clubs, etc…

To be NON-TAXABLE it must be work related.

Meeting potential clients for a round of golf.

Must be substantiated – names, dates topics discussed etc…

Group Term Life

Insurance

Exclude the first $50,000 from wages.

Exclude the first $2,000 of coverage for spouses

Over limits follow IRS table for calculation

Report Box 12 Code C on W2

Lodging

You can exclude from taxable wages if:

It is furnished on your business premises

It is furnished for your convenience

The employee must accept it as a condition of

employment

***The exclusion is void if you allow your employee to

choose to receive additional pay instead of Lodging.

Meals Taxable

Same day travel

Provided more than occasionally

Examples of Non Taxable Meals:

Coffee, Doughnuts, Soft Drinks, Fruit

Occasional meals or meal money if

employee is working occasional

overtime

Occasional parties or picnics.

Meals provided on premises

Available to all employees or none!

Moving Expenses

Deductibility

Distance Test – 50+ Miles

Time Test – Must be employed for 39 weeks during

the 12 months following the move.

Deductible (qualified, nontaxable) moving expenses

Transportation of Household Goods

Expenses of traveling from old residence to new residence (excluding meal)

Members of household included (pets too!)

Moving Expenses Continued

Nondeductible (nonqualified, taxable) moving expenses

Meals while in transit

House hunting trips

Real estate expenses(closing costs, down payments

etc.)

Storage after initial move (30 day rule unless moving

International)

Mileage reimbursed over .19 cents per mile (2016)

Reporting of moving expenses

Deductible (non-taxable) - Box 12 Code P

Nondeductible – Included in taxable wages Box 1,3,5

IRS Publication 521

Personal Use of Company Provided

Vehicle

Accounting for Use – Valuation Methods

General Valuation Method

Special Valuation Methods

Commuting Valuation Method ($1.50 each way)

Annual Lease Valuation Method (IRS Table)

Vehicle cents-per-mile Method (.54 cents x personal mile)

Be Consistent!

Employer may decide not to withhold Federal Tax

Maintain all logs for IRS review

Transportation Benefits

PATH – Protecting Americans From Tax Hikes 2015 –permanent.

Commuter Highway Vehicle Transportation and Transit Passes

$255 per month in 2016

Qualified Parking

$255 per month in 2016

Bicycle Commuting Reimbursement

$20 per month for months that qualify.

Substantial portion of travel from residence to place of employment

Does not receive commuter highway vehicle transportation, transit pass or qualified parking benefit.

Gift Cards, Gifts, Prizes

Incentives

ALL gift cards are taxable just like cash.

Incentives to participate in surveys

Prizes won at picnics and parties

Are they low in value?

Are they gift cards?

Is it a vacation?

Uniforms

Can they be worn as street clothes?

Do you give a cash allowance?

Misc. Cheat Sheet 2016 Cents-per-Mile

54 Cents business mileage rate

19 cents for medical and moving

14 cents for service to charitable organizations

Flexible Spending Accounts (FSA)

$2,550.00

Additional Medicare Tax Withholding

0.9%(.009) on wages in excess of $200,000.00

High Deductible Plan (1,300 single or $2,600 family)

$3,350 single $6,750 family

$4,350 single $7,650 family – Over 55 years (increase by $1,000)

401(k), 403(b), 457 limits

$18,300 (Additional $6,000 catch up for 50+ yrs)

Are you a Detective?

Make friends with the AP department

Travel and Expense Reports

Look for unusual payments to employees

Talk to HR

Become a resource for your company

27

Questions?!?!?

Resources Used

The Payroll Source – 2016

Employer’s Tax Guide to Fringe Benefits – IRS Publication 15-B

https://www.irs.gov/pub/irs-

pdf/p15b.pdf?_ga=1.88508699.1628373674.1471958655

Contact Information

Luanne Brown, CPP

Grand Valley State University, Allendale Michigan

brownlua@gvsu.edu

Direct Line: 616-331-2255