Publication 15-B
taxmap/pubs/p15b-001.htm#en_us_publink1000193638This section discusses the exclusion rules that apply to fringe
benefits. These rules exclude all or part of the value of certain benefits from
the recipient's pay.
The excluded benefits are not subject to federal income tax withholding.
Also, in most cases, they are not subject to social security, Medicare, or
federal unemployment (FUTA) tax and are not reported on Form W-2.
This section discusses the exclusion rules for the following
fringe benefits.
- Accident and health benefits.
- Achievement awards.
- Adoption assistance.
- Athletic facilities.
- De minimis (minimal) benefits.
- Dependent care assistance.
- Educational assistance.
- Employee discounts.
- Employee stock options.
- Group-term life insurance coverage.
- Health savings accounts (HSAs).
- Lodging on your business premises.
- Meals.
- Moving expense reimbursements.
- No-additional-cost services.
- Retirement planning services.
- Transportation (commuting) benefits.
- Tuition reduction.
- Volunteer firefighter and emergency medical responder benefits.
- Working condition benefits.
See Table 2-1 on page 6 for an overview of the employment tax
treatment of these benefits.
taxmap/pubs/p15b-001.htm#en_us_publink1000193639
Table 2-1.
Special Rules for Various Types of Fringe Benefits
(For more information, see the full discussion in this section.)
| | Treatment Under Employment Taxes |
|---|
| Type of Fringe Benefit | Income Tax Withholding | Social Security and Medicare | Federal Unemployment (FUTA) |
|---|
| Accident and health benefits | Exempt1,2, except for long-term care benefits provided through a
flexible spending or similar arrangement.
| Exempt, except for certain payments to S corporation employees
who are 2% shareholders. | Exempt |
| Achievement awards | Exempt1
up to $1,600 for qualified plan awards ($400 for nonqualified awards).
|
| Adoption assistance | Exempt1,3 | Taxable | Taxable |
| Athletic facilities | Exempt if substantially all use during the calendar year
is by employees, their spouses, and their dependent children and the facility is
operated by the employer on premises owned or leased by the employer.
|
| De minimis (minimal) benefits
| Exempt | Exempt | Exempt |
| Dependent care assistance | Exempt3
up to certain limits, $5,000 ($2,500 for married employee filing separate
return).
|
| Educational assistance | Exempt up to $5,250 of benefits each year. (See
Educational Assistance, later.)
|
| Employee discounts | Exempt3 up to certain limits. (See
Employee Discounts, later.)
|
| Employee stock options | See
Employee Stock Options, later.
|
| Group-term life insurance coverage | Exempt | Exempt1,4
up to cost of $50,000 of coverage. (Special rules apply to former employees.)
| Exempt |
| Health savings accounts (HSAs) | Exempt for qualified individuals up to the HSA contribution
limits. (See
Health Savings Accounts, later.)
|
| Lodging on your business premises | Exempt1 if furnished for your convenience as a condition of employment.
|
| Meals | Exempt if furnished on your business premises for your convenience. |
| Exempt if
de minimis.
|
| Moving expense reimbursements | Exempt1 if expenses would be deductible if the employee had paid
them.
|
| No-additional-cost services | Exempt3 | Exempt3 | Exempt3 |
Retirement planning
services
| Exempt5 | Exempt5 | Exempt5 |
| Transportation (commuting) benefits | Exempt1
up to certain limits if for rides in a commuter highway vehicle and/or transit
passes ($120, but see the
Caution
on page 1), qualified parking ($230), or qualified bicycle commuting
reimbursement6 ($20). (See
Transportation (Commuting) Benefits, later.)
|
| Exempt if
de minimis.
|
| Tuition reduction | Exempt3
if for undergraduate education (or graduate education if the employee performs
teaching or research activities).
|
| Volunteer firefighter and emergency medical responder benefits | Exempt | Exempt | Exempt |
| Working condition benefits | Exempt | Exempt | Exempt |
| 1
Exemption does not apply to S corporation employees who are 2% shareholders.
|
| 2
Exemption does not apply to certain highly compensated employees under a
self-insured plan that favors those employees.
|
| 3
Exemption does not apply to certain highly compensated employees under a program
that favors those employees.
|
| 4
Exemption does not apply to certain key employees under a plan that favors those
employees.
|
| 5
Exemption does not apply to services for tax preparation, accounting, legal, or
brokerage services.
|
| 6
If the employee receives a qualified bicycle commuting reimbursement in a
qualified bicycle commuting month, the employee cannot receive commuter highway
vehicle, transit pass, or qualified parking benefits in that same month.
|
taxmap/pubs/p15b-001.htm#en_us_publink1000193641This exclusion applies to contributions you make to an accident
or health plan for an employee, including the following.
- Contributions to the cost of accident or health insurance
including qualified long-term care insurance.
- Contributions to a separate trust or fund that directly or
through insurance provides accident or health benefits.
- Contributions to Archer MSAs or health savings accounts (discussed
in Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans).
This exclusion also applies to payments you directly or indirectly
make to an employee under an accident or health plan for employees that are
either of the following.
- Payments or reimbursements of medical expenses.
- Payments for specific injuries or illnesses (such as the loss
of the use of an arm or leg). The payments must be figured without regard to any
period of absence from work.
This is an arrangement that provides benefits for your employees,
their spouses, their dependents, and their children (under age 27) in the event
of personal injury or sickness. The plan may be insured or noninsured and does
not need to be in writing.
taxmap/pubs/p15b-001.htm#en_us_publink1000193643For this exclusion, treat the following individuals as employees.
- A current common-law employee.
- A full-time life insurance agent who is a current statutory
employee.
- A retired employee.
- A former employee you maintain coverage for based on the employment
relationship.
- A widow or widower of an individual who died while an employee.
- A widow or widower of a retired employee.
- For the exclusion of contributions to an accident or health
plan, a leased employee who has provided services to you on a substantially
full-time basis for at least a year if the services are performed under your
primary direction or control.
For certain government accident and health plans, payments to
a deceased plan participant's beneficiary may qualify for the exclusion from
gross income if the other requirements for exclusion are met. See section 105(j)
for details.
taxmap/pubs/p15b-001.htm#en_us_publink1000193644Do not treat a 2% shareholder of an S corporation as an employee
of the corporation for this purpose. A 2% shareholder is someone who directly or
indirectly owns (at any time during the year) more than 2% of the corporation's
stock or stock with more than 2% of the voting power. Treat a 2% shareholder as
you would a partner in a partnership for fringe benefit purposes, but do not
treat the benefit as a reduction in distributions to the 2% shareholder.
taxmap/pubs/p15b-001.htm#en_us_publink1000193645You can generally exclude the value of accident or health benefits
you provide to an employee from the employee's wages.
taxmap/pubs/p15b-001.htm#en_us_publink1000193646You cannot exclude contributions to the cost of long-term care
insurance from an employee's wages subject to federal income tax withholding if
the coverage is provided through a flexible spending or similar arrangement.
This is a benefit program that reimburses specified expenses up to a maximum
amount that is reasonably available to the employee and is less than five times
the total cost of the insurance. However, you can exclude these contributions
from the employee's wages subject to social security, Medicare, and federal
unemployment (FUTA) taxes.
taxmap/pubs/p15b-001.htm#en_us_publink1000193647Because you cannot treat a 2% shareholder of an S corporation
as an employee for this exclusion, you must include the value of accident or
health benefits you provide to the employee in the employee's wages subject to
federal income tax withholding. However, you can exclude the value of these
benefits (other than payments for specific injuries or illnesses) from the
employee's wages subject to social security, Medicare, and FUTA taxes.
taxmap/pubs/p15b-001.htm#en_us_publink1000193648If your plan is a self-insured medical reimbursement plan that
favors highly compensated employees, you must include all or part of the amounts
you pay to these employees in their wages subject to federal income tax
withholding. However, you can exclude these amounts (other than payments for
specific injuries or illnesses) from the employee's wages subject to social
security, Medicare, and FUTA taxes.
A self-insured plan is a plan that reimburses your employees
for medical expenses not covered by an accident or health insurance policy.
A highly compensated employee for this exception is any of the
following individuals.
- One of the five highest paid officers.
- An employee who owns (directly or indirectly) more than 10%
in value of the employer's stock.
- An employee who is among the highest paid 25% of all employees
(other than those who can be excluded from the plan).
For more information on this exception, see section 105(h) of
the Internal Revenue Code and its regulations.
taxmap/pubs/p15b-001.htm#en_us_publink1000193649The exclusion for accident and health benefits applies to amounts
you pay to maintain medical coverage for a current or former employee under the
Combined Omnibus Budget Reconciliation Act of 1986 (COBRA). The exclusion
applies regardless of the length of employment, whether you directly pay the
premiums or reimburse the former employee for premiums paid, and whether the
employee's separation is permanent or temporary.
taxmap/pubs/p15b-001.htm#en_us_publink1000193650This exclusion applies to the value of any tangible personal
property you give to an employee as an award for either length of service or
safety achievement. 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. The award must meet the requirements for employee achievement awards
discussed in chapter 2 of Publication 535, Business Expenses.
taxmap/pubs/p15b-001.htm#en_us_publink1000193651For this exclusion, treat the following individuals as employees.
- A current employee.
- A former common-law employee you maintain coverage for in
consideration of or based on an agreement relating to prior service as an
employee.
- A leased employee who has provided services to you on a substantially
full-time basis for at least a year if the services are performed under your
primary direction or control.
Do not treat a 2% shareholder of an S corporation as an employee
of the corporation for this purpose. A 2% shareholder is someone who directly or
indirectly owns (at any time during the year) more than 2% of the corporation's
stock or stock with more than 2% of the voting power. Treat a 2% shareholder as
you would a partner in a partnership for fringe benefit purposes, but do not
treat the benefit as a reduction in distributions to the 2% shareholder.
taxmap/pubs/p15b-001.htm#en_us_publink1000193653You can generally exclude the value of achievement awards you
give to an employee from the employee's wages if their cost is not more than the
amount you can deduct as a business expense for the year. The excludable annual
amount is $1,600 ($400 for awards that are not "qualified plan awards"). See
chapter 2 of Publication 535 for more information about the limit on deductions
for employee achievement awards.
 | To determine for 2011 whether an achievement award is a "qualified
plan award" under the deduction rules described in Publication 535, treat any
employee who received more than $110,000 in pay for 2010 as a highly compensated
employee. |
If the cost of awards given to an employee is more than your
allowable deduction, include in the employee's wages the larger of the following
amounts.
- The part of the cost that is more than your allowable deduction
(up to the value of the awards).
- The amount by which the value of the awards exceeds your allowable
deduction.
Exclude the remaining value of the awards from the employee's
wages.
An adoption assistance program is a separate written plan of
an employer that meets all of the following requirements.
- It benefits employees who qualify under rules set up by you,
which do not favor highly compensated employees or their dependents. To
determine whether your plan meets this test, do not consider employees excluded
from your plan who are covered by a collective bargaining agreement, if there is
evidence that adoption assistance was a subject of good-faith bargaining.
- It does not pay more than 5% of its payments during the year
for shareholders or owners (or their spouses or dependents). A shareholder or
owner is someone who owns (on any day of the year) more than 5% of the stock or
of the capital or profits interest of your business.
- You give reasonable notice of the plan to eligible employees.
- Employees provide reasonable substantiation that payments
or reimbursements are for qualifying expenses.
For this exclusion, a highly compensated employee for 2011 is
an employee who meets either of the following tests.
- The employee was a 5% owner at any time during the year or
the preceding year.
- The employee received more than $110,000 in pay for the preceding
year.
You can choose to ignore test (2) if the employee was not also
in the top 20% of employees when ranked by pay for the preceding year.
You must exclude all payments or reimbursements you make under
an adoption assistance program for an employee's qualified adoption expenses
from the employee's wages subject to federal income tax withholding. However,
you cannot exclude these payments from wages subject to social security,
Medicare, and federal unemployment (FUTA) taxes. For more information, see the
Instructions for Form 8839, Qualified Adoption Expenses.
You must report all qualifying adoption expenses you paid or
reimbursed under your adoption assistance program for each employee for the year
in box 12 of the employee's Form W-2. Use code "T" to identify this amount.
taxmap/pubs/p15b-001.htm#en_us_publink1000193656For this exclusion, do not treat a 2% shareholder of an S corporation
as an employee of the corporation. A 2% shareholder is someone who directly or
indirectly owns (at any time during the year) more than 2% of the corporation's
stock or stock with more than 2% of the voting power. Treat a 2% shareholder as
you would a partner in a partnership for fringe benefit purposes, including
using the benefit as a reduction in distributions to the 2% shareholder.
taxmap/pubs/p15b-001.htm#en_us_publink1000193657You can exclude the value of an employee's use of an on-premises
gym or other athletic facility you operate from an employee's wages if
substantially all use of the facility during the calendar year is by your
employees, their spouses, and their dependent children. For this purpose, an
employee's dependent child is a child or stepchild who is the employee's
dependent or who, if both parents are deceased, has not attained the age of 25.
taxmap/pubs/p15b-001.htm#en_us_publink1000193658The athletic facility must be located on premises you own or
lease. It does not have to be located on your business premises. However, the
exclusion does not apply to an athletic facility for residential use, such as
athletic facilities that are part of a resort.
taxmap/pubs/p15b-001.htm#en_us_publink1000193659For this exclusion, treat the following individuals as employees.
- A current employee.
- A former employee who retired or left on disability.
- A widow or widower of an individual who died while an employee.
- A widow or widower of a former employee who retired or left
on disability.
- A leased employee who has provided services to you on a substantially
full-time basis for at least a year if the services are performed under your
primary direction or control.
- A partner who performs services for a partnership.
You can exclude the value of a
de minimis benefit you provide to an employee from the employee's wages.
A
de minimis
benefit is any property or service you provide to an employee that has so little
value (taking into account how frequently you provide similar benefits to your
employees) that accounting for it would be unreasonable or administratively
impracticable. Cash and cash equivalent fringe benefits (for example, use of
gift card, charge card, or credit card), no matter how little, are never
excludable as a
de minimis benefit, except for occasional meal money or transportation
fare.
Examples of
de minimis benefits include the following.
- Occasional personal use of a company copying machine if you
sufficiently control its use so that at least 85% of its use is for business
purposes.
- Holiday gifts, other than cash, with a low fair market value.
- Group-term life insurance payable on the death of an employee's
spouse or dependent if the face amount is not more than $2,000.
- Meals. See
Meals, later.
- Occasional parties or picnics for employees and their guests.
- Occasional tickets for theater or sporting events.
- Transportation fare. See
Transportation (Commuting) Benefits, later.
For this exclusion, treat any recipient of a
de minimis benefit as an employee.
taxmap/pubs/p15b-001.htm#en_us_publink1000193662This exclusion applies to household and dependent care services
you directly or indirectly pay for or provide to an employee under a dependent
care assistance program that covers only your employees. The services must be
for a qualifying person's care and must be provided to allow the employee to
work. These requirements are basically the same as the tests the employee would
have to meet to claim the dependent care credit if the employee paid for the
services. For more information, see
Qualifying Person Test and
Work-Related Expense Test in Publication 503, Child and Dependent Care Expenses.
taxmap/pubs/p15b-001.htm#en_us_publink1000193663For this exclusion, treat the following individuals as employees.
- A current employee.
- A leased employee who has provided services to you on a substantially
full-time basis for at least a year if the services are performed under your
primary direction or control.
- Yourself (if you are a sole proprietor).
- A partner who performs services for a partnership.
You can exclude the value of benefits you provide to an employee
under a dependent care assistance program from the employee's wages if you
reasonably believe that the employee can exclude the benefits from gross income.
An employee can generally exclude from gross income up to $5,000
of benefits received under a dependent care assistance program each year. This
limit is reduced to $2,500 for married employees filing separate returns.
However, the exclusion cannot be more than the smaller of the
earned income of either the employee or employee's spouse. Special rules apply
to determine the earned income of a spouse who is either a student or not able
to care for himself or herself. For more information on the earned income limit,
see Publication 503.
taxmap/pubs/p15b-001.htm#en_us_publink1000193665You cannot exclude dependent care assistance from the wages of
a highly compensated employee unless the benefits provided under the program do
not favor highly compensated employees and the program meets the requirements
described in section 129(d) of the Internal Revenue Code.
For this exclusion, a highly compensated employee for 2011 is
an employee who meets either of the following tests.
- The employee was a 5% owner at any time during the year or
the preceding year.
- The employee received more than $110,000 in pay for the preceding
year.
You can choose to ignore test (2) if the employee was not also
in the top 20% of employees when ranked by pay for the preceding year.
Report the value of all dependent care assistance you provide
to an employee under a dependent care assistance program in box 10 of the
employee's Form W-2. Include any amounts you cannot exclude from the employee's
wages in boxes 1, 3, and 5. Report both the nontaxable portion of assistance (up
to $5,000) and any assistance above the amount that is non-taxable to the
employee.
taxmap/pubs/p15b-001.htm#en_us_publink1000251113Company A provides a dependent care assistance flexible spending
arrangement to its employees through a cafeteria plan. In addition, it provides
occasional on-site dependent care to its employees at no cost. Emily, an
employee of company A, had $4,500 deducted from her pay for the dependent care
flexible spending arrangement. In addition, Emily used the on-site dependent
care several times. The fair market value of the on-site care was $700. Emily's
Form W-2 should report $5,200 of dependent care assistance in Box 10 ($4,500
flexible spending arrangement plus $700 on-site dependent care.) Boxes 1, 3, and
5 should include $200 (the amount in excess of the nontaxable assistance), and
applicable taxes should be withheld on that amount.
taxmap/pubs/p15b-001.htm#en_us_publink1000193667This exclusion applies to educational assistance you provide
to employees under an educational assistance program. The exclusion also applies
to graduate level courses.
Educational assistance means amounts you pay or incur for your
employees' education expenses. These expenses generally include the cost of
books, equipment, fees, supplies, and tuition. However, these expenses do not
include the cost of a course or other education involving sports, games, or
hobbies, unless the education:
- Has a reasonable relationship to your business, or
- Is required as part of a degree program.
Education expenses do not include the cost of tools or supplies
(other than textbooks) your employee is allowed to keep at the end of the
course. Nor do they include the cost of lodging, meals, or transportation.
taxmap/pubs/p15b-001.htm#en_us_publink1000193668An educational assistance program is a separate written plan
that provides educational assistance only to your employees. The program
qualifies only if all of the following tests are met.
- The program benefits employees who qualify under rules set
up by you that do not favor highly compensated employees. To determine whether
your program meets this test, do not consider employees excluded from your
program who are covered by a collective bargaining agreement if there is
evidence that educational assistance was a subject of good-faith bargaining.
- The program does not provide more than 5% of its benefits
during the year for shareholders or owners. A shareholder or owner is someone
who owns (on any day of the year) more than 5% of the stock or of the capital or
profits interest of your business.
- The program does not allow employees to choose to receive
cash or other benefits that must be included in gross income instead of
educational assistance.
- You give reasonable notice of the program to eligible employees.
Your program can cover former employees if their employment
is the reason for the coverage.
For this exclusion, a highly compensated employee for 2011 is
an employee who meets either of the following tests.
- The employee was a 5% owner at any time during the year or
the preceding year.
- The employee received more than $110,000 in pay for the preceding
year.
You can choose to ignore test (2) if the employee was not also
in the top 20% of employees when ranked by pay for the preceding year.
For this exclusion, treat the following individuals as employees.
- A current employee.
- A former employee who retired, left on disability, or was
laid off.
- A leased employee who has provided services to you on a substantially
full-time basis for at least a year if the services are performed under your
primary direction or control.
- Yourself (if you are a sole proprietor).
- A partner who performs services for a partnership.
You can exclude up to $5,250 of educational assistance you provide
to an employee under an educational assistance program from the employee's wages
each year.
taxmap/pubs/p15b-001.htm#en_us_publink1000193671If you do not have an educational assistance plan, or you provide
an employee with assistance exceeding $5,250, you can exclude the value of these
benefits from wages if they are working condition benefits. Property or a
service provided is a working condition benefit to the extent that if the
employee paid for it, the amount paid would have been deductible as a business
or depreciation expense. See
Working Condition Benefits, later.
This exclusion applies to a price reduction you give an employee
on property or services you offer to customers in the ordinary course of the
line of business in which the employee performs substantial services. However,
it does not apply to discounts on real property or discounts on personal
property of a kind commonly held for investment (such as stocks or bonds).
taxmap/pubs/p15b-001.htm#en_us_publink1000193673For this exclusion, treat the following individuals as employees.
- A current employee.
- A former employee who retired or left on disability.
- A widow or widower of an individual who died while an employee.
- A widow or widower of an employee who retired or left on disability.
- A leased employee who has provided services to you on a substantially
full-time basis for at least a year if the services are performed under your
primary direction or control.
- A partner who performs services for a partnership.
You can generally exclude the value of an employee discount you
provide an employee from the employee's wages, up to the following limits.
- For a discount on services, 20% of the price you charge nonemployee
customers for the service.
- For a discount on merchandise or other property, your gross
profit percentage times the price you charge nonemployee customers for the
property.
Determine your gross profit percentage in the line of business
based on all property you offer to customers (including employee customers) and
your experience during the tax year immediately before the tax year in which the
discount is available. To figure your gross profit percentage, subtract the
total cost of the property from the total sales price of the property and divide
the result by the total sales price of the property.
taxmap/pubs/p15b-001.htm#en_us_publink1000193675You cannot exclude from the wages of a highly compensated employee
any part of the value of a discount that is not available on the same terms to
one of the following groups.
- All of your employees.
- A group of employees defined under a reasonable classification
you set up that does not favor highly compensated employees.
For this exclusion, a highly compensated employee for 2011 is
an employee who meets either of the following tests.
- The employee was a 5% owner at any time during the year or
the preceding year.
- The employee received more than $110,000 in pay for the preceding
year.
You can choose to ignore test (2) if the employee was not also
in the top 20% of employees when ranked by pay for the preceding year.
There are three kinds of stock options—incentive stock
options, employee stock purchase plan options, and nonstatutory (nonqualified)
stock options.
Wages for social security, Medicare, and federal unemployment
taxes (FUTA) do not include remuneration resulting from the exercise, after
October 22, 2004, of an incentive stock option or under an employee stock
purchase plan option, or from any disposition of stock acquired by exercising
such an option. The IRS will not apply these taxes to an exercise before October
23, 2004, of an incentive stock option or an employee stock purchase plan option
or to a disposition of stock acquired by such exercise.
Additionally, federal income tax withholding is not required
on the income resulting from a disqualifying disposition of stock acquired by
the exercise after October 22, 2004, of an incentive stock option or under an
employee stock purchase plan option, or on income equal to the discount portion
of stock acquired by the exercise, after October 22, 2004, of an employee stock
purchase plan option resulting from any disposition of the stock. The IRS will
not apply federal income tax withholding upon the disposition of stock acquired
by the exercise, before October 23, 2004, of an incentive stock option or an
employee stock purchase plan option. However, the employer must report as income
in box 1 of Form W-2, (a) the discount portion of stock acquired by the exercise
of an employee stock purchase plan option upon disposition of the stock, and (b)
the spread (between the exercise price and the fair market value of the stock at
the time of exercise) upon a disqualifying disposition of stock acquired by the
exercise of an incentive stock option or an employee stock purchase plan option.
An employer must report the excess of the fair market value of
stock received upon exercise of a nonstatutory stock option over the amount paid
for the stock option on Form W-2 in boxes 1, 3 (up to the social security wage
base), 5, and in box 12 using the code "V." See Regulations section 1.83-7.
An employee who transfers his or her interest in nonstatutory
stock options to the employee's former spouse incident to a divorce is not
required to include an amount in gross income upon the transfer. The former
spouse, rather than the employee, is required to include an amount in gross
income when the former spouse exercises the stock options. See Revenue Ruling
2002-22 and Revenue Ruling 2004-60 for details. You can find Revenue Ruling
2002-22 on page 849 of Internal Revenue Bulletin 2002-19 at
www.irs.gov/pub/irs-irbs/irb02-19.pdf. See Revenue Ruling 2004-60, 2004-24 I.R.B. 1051, available
at
www.irs.gov/irb/2004-24_IRB/ar13.html.
For more information about employee stock options, see sections
421, 422, and 423 of the Internal Revenue Code and their related regulations.
taxmap/pubs/p15b-001.htm#en_us_publink1000193677This exclusion applies to life insurance coverage that meets
all the following conditions.
- It provides a general death benefit that is not included in
income.
- You provide it to a group of employees. See
The 10-employee rule, later.
- It provides an amount of insurance to each employee based
on a formula that prevents individual selection. This formula must use factors
such as the employee's age, years of service, pay, or position.
- You provide it under a policy you directly or indirectly carry.
Even if you do not pay any of the policy's cost, you are considered to carry it
if you arrange for payment of its cost by your employees and charge at least one
employee less than, and at least one other employee more than, the cost of his
or her insurance. Determine the cost of the insurance, for this purpose, as
explained under
Coverage over the limit, later.
Group-term life insurance does not include the following insurance.
- Insurance that does not provide general death benefits, such
as travel insurance or a policy providing only accidental death benefits.
- Life insurance on the life of your employee's spouse or dependent.
However, you may be able to exclude the cost of this insurance from the
employee's wages as a
de minimis benefit. See
De Minimis (Minimal) Benefits, earlier.
- Insurance provided under a policy that provides a permanent
benefit (an economic value that extends beyond 1 policy year, such as paid-up or
cash surrender value), unless certain requirements are met. See Regulations
section 1.79-1 for details.
For this exclusion, treat the following individuals as employees.
- A current common-law employee.
- A full-time life insurance agent who is a current statutory
employee.
- An individual who was formerly your employee under (1) or
(2), above.
- A leased employee who has provided services to you on a substantially
full-time basis for at least a year if the services are performed under your
primary direction and control.
Do not treat a 2% shareholder of an S corporation as an employee
of the corporation for this purpose. A 2% shareholder is someone who directly or
indirectly owns (at any time during the year) more than 2% of the corporation's
stock or stock with more than 2% of the voting power. Treat a 2% shareholder as
you would a partner in a partnership for fringe benefit purposes, but do not
treat the benefit as a reduction in distributions to the 2% shareholder.
taxmap/pubs/p15b-001.htm#en_us_publink1000193680Generally, life insurance is not group-term life insurance unless
you provide it to at least 10 full-time employees at some time during the year.
For this rule, count employees who choose not to receive the
insurance unless, to receive it, they must contribute to the cost of benefits
other than the group-term life insurance. For example, count an employee who
could receive insurance by paying part of the cost, even if that employee
chooses not to receive it. However, do not count an employee who must pay part
or all of the cost of permanent benefits to get insurance, unless that employee
chooses to receive it. A permanent benefit is an economic value extending beyond
one policy year (for example, a paid-up or cash-surrender value) that is
provided under a life insurance policy.
taxmap/pubs/p15b-001.htm#en_us_publink1000193681Even if you do not meet the 10-employee rule, two exceptions
allow you to treat insurance as group-term life insurance.
Under the first exception, you do not have to meet the 10-employee
rule if all the following conditions are met.
- If evidence that the employee is insurable is required, it
is limited to a medical questionnaire (completed by the employee) that does not
require a physical.
- You provide the insurance to all your full-time employees
or, if the insurer requires the evidence mentioned in (1), to all full-time
employees who provide evidence the insurer accepts.
- You figure the coverage based on either a uniform percentage
of pay or the insurer's coverage brackets that meet certain requirements. See
Regulations section 1.79-1 for details.
Under the second exception, you do not have to meet the 10-employee
rule if all the following conditions are met.
- You provide the insurance under a common plan covering your
employees and the employees of at least one other employer who is not related to
you.
- The insurance is restricted to, but mandatory for, all your
employees who belong to, or are represented by, an organization (such as a
union) that carries on substantial activities besides obtaining insurance.
- Evidence of whether an employee is insurable does not affect
an employee's eligibility for insurance or the amount of insurance that employee
gets.
To apply either exception, do not consider employees who were
denied insurance for any of the following reasons.
- They were 65 or older.
- They customarily work 20 hours or less a week or 5 months
or less in a calendar year.
- They have not been employed for the waiting period given in
the policy. This waiting period cannot be more than 6 months.
You can generally exclude the cost of up to $50,000 of group-term
life insurance from the wages of an insured employee. You can exclude the same
amount from the employee's wages when figuring social security and Medicare
taxes. In addition, you do not have to withhold federal income tax or pay FUTA
tax on any group-term life insurance you provide to an employee.
taxmap/pubs/p15b-001.htm#en_us_publink1000193683You must include in your employee's wages the cost of group-term
life insurance beyond $50,000 worth of coverage, reduced by the amount the
employee paid toward the insurance. Report it as wages in boxes 1, 3, and 5 of
the employee's Form W-2. Also, show it in box 12 with code "C." The amount is
subject to social security and Medicare taxes, and you may, at your option,
withhold federal income tax.
Figure the monthly cost of the insurance to include in the employee's
wages by multiplying the number of thousands of dollars of all insurance
coverage over $50,000 (figured to the nearest $100) by the cost shown in the
following table. For all coverage provided within the calendar year, use the
employee's age on the last day of the employee's tax year. You must prorate the
cost from the table if less than a full month of coverage is involved.
Table 2-2. Cost Per $1,000 of Protection For 1 Month
| Age | Cost |
| Under 25 | $ .05 |
| 25 through 29 | .06 |
| 30 through 34 | .08 |
| 35 through 39 | .09 |
| 40 through 44 | .10 |
| 45 through 49 | .15 |
| 50 through 54 | .23 |
| 55 through 59 | .43 |
| 60 through 64 | .66 |
| 65 through 69 | 1.27 |
| 70 and older | 2.06 |
You figure the total cost to include in the employee's wages
by multiplying the monthly cost by the number of full months' coverage at that
cost.
taxmap/pubs/p15b-001.htm#en_us_publink1000193685Tom's employer provides him with group-term life insurance coverage
of $200,000. Tom is 45 years old, is not a key employee, and pays $100 per year
toward the cost of the insurance. Tom's employer must include $170 in his wages.
The $200,000 of insurance coverage is reduced by $50,000. The yearly cost of
$150,000 of coverage is $270 ($.15 x 150 x 12), and is reduced by the $100 Tom
pays for the insurance. The employer includes $170 in boxes 1, 3, and 5 of Tom's
Form W-2. The employer also enters $170 in box 12 with
code "C."
taxmap/pubs/p15b-001.htm#en_us_publink1000193686Group-term life insurance coverage paid by the employer for the
spouse or dependents of an employee may be excludable from income as a
de minimis
fringe benefit if the face amount is not more than $2,000. If the face amount is
greater than $2,000, the entire amount of the dependent coverage must be
included in income unless the amount over $2,000 is purchased with employee
contributions on an after-tax basis.
taxmap/pubs/p15b-001.htm#en_us_publink1000193687When group-term life insurance over $50,000 is provided to an
employee (including retirees) after his or her termination, the employee share
of social security and Medicare taxes on that period of coverage is paid by the
former employee with his or her tax return and is not collected by the employer.
You are not required to collect those taxes. Use the table above to determine
the amount of social security and Medicare taxes owed by the former employee for
coverage provided after separation from service. Report those uncollected
amounts separately in box 12 on Form W-2 using codes "M" and "N." See the
Instructions for Forms W-2 and W-3 and the Instructions for Form 941.
taxmap/pubs/p15b-001.htm#en_us_publink1000193688Generally, if your group-term life insurance plan favors key
employees as to participation or benefits, you must include the entire cost of
the insurance in your key employees' wages. This exception generally does not
apply to church plans. When figuring social security and Medicare taxes, you
must also include the entire cost in the employees' wages. Include the cost in
boxes 1, 3, and 5 of Form W-2. However, you do not have to withhold federal
income tax or pay FUTA tax on the cost of any group-term life insurance you
provide to an employee.
For this purpose, the cost of the insurance is the greater of
the following amounts.
- The premiums you pay for the employee's insurance. See Regulations
section 1.79-4T(Q&A 6) for more information.
- The cost you figure using the Table 2-2.
For this exclusion, a key employee during 2011 is an employee
or former employee who is one of the following individuals. See section 416(i)
of the Internal Revenue Code for more information.
- An officer having annual pay of more than $160,000.
- An individual who for 2011 was either of the following.
- A 5% owner of your business.
- A 1% owner of your business whose annual pay was more than
$150,000.
A former employee who was a key employee upon retirement or separation
from service is also a key employee.
Your plan does not favor key employees as to participation if
at least one of the following is true.
- It benefits at least 70% of your employees.
- At least 85% of the participating employees are not key employees.
- It benefits employees who qualify under a set of rules you
set up that do not favor key employees.
Your plan meets this participation test if it is part of a cafeteria
plan (discussed in section 1) and it meets the participation test for those
plans.
When applying this test, do not consider employees who:
- Have not completed 3 years of service,
- Are part-time or seasonal,
- Are nonresident aliens who receive no U.S. source earned income
from you, or
- Are not included in the plan but are in a unit of employees
covered by a collective bargaining agreement, if the benefits provided under the
plan were the subject of good-faith bargaining between you and employee
representatives.
Your plan does not favor key employees as to benefits if all
benefits available to participating key employees are also available to all
other participating employees. Your plan does not favor key employees just
because the amount of insurance you provide to your employees is uniformly
related to their pay.
taxmap/pubs/p15b-001.htm#en_us_publink1000193689Because you cannot treat a 2% shareholder of an S corporation
as an employee for this exclusion, you must include the cost of all group-term
life insurance coverage you provide the 2% shareholder in his or her wages. When
figuring social security and Medicare taxes, you must also include the cost of
this coverage in the 2% shareholder's wages. Include the cost in boxes 1, 3, and
5 of Form W-2. However, you do not have to withhold federal income tax or pay
federal unemployment tax on the cost of any group-term life insurance coverage
you provide to the 2% shareholder.
taxmap/pubs/p15b-001.htm#en_us_publink1000193690A Health Savings Account (HSA) is an account owned by a qualified
individual who is generally your employee or former employee. Any contributions
that you make to an HSA become the employee's property and cannot be withdrawn
by you. Contributions to the account are used to pay current or future medical
expenses of the account owner, his or her spouse, and any qualified dependent.
The medical expenses must not be reimbursable by insurance or other sources and
their payment from HSA funds (distribution) will not give rise to a medical
expense deduction on the individual's federal income tax return. For more
information about HSAs, visit the Department of Treasury's website at
www.treas.gov/offices/public-affairs/hsa.
A qualified individual must be covered by a High Deductible Health
Plan (HDHP) and not be covered by other health insurance except for permitted
insurance listed under section 223(c)(3) or insurance for accidents, disability,
dental care, vision care, or long-term care. For calendar year 2011, a
qualifying HDHP must have a deductible of at least $1,200 for self-only coverage
or $2,400 for family coverage and must limit annual out-of-pocket expenses of
the beneficiary to $5,950 for self-only coverage and $11,900 for family
coverage.
There are no income limits that restrict an individual's eligibility
to contribute to an HSA nor is there a requirement that the account owner have
earned income to make a contribution.
taxmap/pubs/p15b-001.htm#en_us_publink1000193692An individual is not a qualified individual if he or she can
be claimed as a dependent on another person's tax return. Also, an employee's
participation in a health flexible spending arrangement (FSA) or health
reimbursement arrangement (HRA) generally disqualifies the individual (and
employer) from making contributions to his or her HSA. However, an individual
may qualify to participate in an HSA if he or she is participating in only a
limited-purpose FSA or HRA or a post-deductible FSA. For more information, see
Other employee health plans in Publication 969.
taxmap/pubs/p15b-001.htm#en_us_publink1000193693Up to specified dollar limits, cash contributions to the HSA
of a qualified individual (determined monthly) are exempt from federal income
tax withholding, social security tax, Medicare tax, and FUTA tax. For 2011, you
can contribute up to $3,050 for self-only coverage or $6,150 for family coverage
to a qualified individual's HSA.
The contribution amounts listed above are increased by $1,000
for a qualified individual who is age 55 or older at any time during the year.
For two qualified individuals who are married to each other and who each are age
55 or older at any time during the year, each spouse's contribution limit is
increased by $1,000 provided each spouse has a separate HSA. No contributions
can be made to an individual's HSA after he or she becomes enrolled in Medicare
Part A or Part B.
taxmap/pubs/p15b-001.htm#en_us_publink1000193694
Your contribution amount to an employee's HSA must be comparable for all
employees who have comparable coverage during the same period. Otherwise, there
will be an excise tax equal to 35% of the amount you contributed to all
employees' HSAs.
For guidance on employer comparable contributions to HSAs under
section 4980G in instances where an employee has not established an HSA by
December 31 and in instances where an employer accelerates contributions for the
calendar year for employees who have incurred qualified medical expenses, see
Regulations section 54.4980G-4.
taxmap/pubs/p15b-001.htm#en_us_publink1000193695The Tax Relief and Health Care Act of 2006 allows employers to
make larger HSA contributions for a nonhighly compensated employee than for a
highly compensated employee. A highly compensated employee for 2011 is an
employee who meets either of the following tests.
- The employee was a 5% owner at any time during the year or
the preceding year.
- The employee received more than $110,000 in pay for the preceding
year.
You can choose to ignore test (2) if the employee was not also
in the top 20% of employees when ranked by pay for the preceding year.
Partners and 2% shareholders of an S corporation are not eligible
for salary reduction (pre-tax) contributions to an HSA. Employer contributions
to the HSA of a bona fide partner or 2% shareholder are treated as distributions
or guaranteed payments as determined by the facts and circumstances.
taxmap/pubs/p15b-001.htm#en_us_publink1000193697You may contribute to an employee's HSA using a cafeteria plan
and your contributions are not subject to the statutory comparability rules.
However, cafeteria plan nondiscrimination rules still apply. For example,
contributions under a cafeteria plan to employee HSAs cannot be greater for
higher-paid employees than they are for lower-paid employees. Contributions that
favor lower-paid employees are not prohibited.
taxmap/pubs/p15b-001.htm#en_us_publink1000193698You must report your contributions to an employee's HSA on Form
W-2 in box 12 using code "W." The trustee or custodian of the HSA, generally a
bank or insurance company, reports distributions from the HSA using Form
1099-SA, Distributions from an HSA, Archer MSA, or Medicare Advantage MSA.
taxmap/pubs/p15b-001.htm#en_us_publink1000193699You can exclude the value of lodging you furnish to an employee
from the employee's wages if it meets the following tests.
- It is furnished on your business premises.
- It is furnished for your convenience.
- The employee must accept it as a condition of employment.
Different tests may apply to lodging furnished by educational
institutions. See section 119(d) of the Internal Revenue Code for details.
The exclusion does not apply if you allow your employee to choose
to receive additional pay instead of lodging.
taxmap/pubs/p15b-001.htm#en_us_publink1000193700For this exclusion, your business premises is generally your
employee's place of work. (For special rules that apply to lodging furnished in
a camp located in a foreign country, see section 119(c) of the Internal Revenue
Code and its regulations.)
taxmap/pubs/p15b-001.htm#en_us_publink1000193701Whether or not you furnish lodging for your convenience as an
employer depends on all the facts and circumstances. You furnish the lodging to
your employee for your convenience if you do this for a substantial business
reason other than to provide the employee with additional pay. This is true even
if a law or an employment contract provides that the lodging is furnished as
pay. However, a written statement that the lodging is furnished for your
convenience is not sufficient.
taxmap/pubs/p15b-001.htm#en_us_publink1000193702Lodging meets this test if you require your employees to accept
the lodging because they need to live on your business premises to be able to
properly perform their duties. Examples include employees who must be available
at all times and employees who could not perform their required duties without
being furnished the lodging.
It does not matter whether you must furnish the lodging as pay
under the terms of an employment contract or a law fixing the terms of
employment.
taxmap/pubs/p15b-001.htm#en_us_publink1000193703A hospital gives Joan, an employee of the hospital, the choice
of living at the hospital free of charge or living elsewhere and receiving a
cash allowance in addition to her regular salary. If Joan chooses to live at the
hospital, the hospital cannot exclude the value of the lodging from her wages
because she is not required to live at the hospital to properly perform the
duties of her employment.
taxmap/pubs/p15b-001.htm#en_us_publink1000193704For this exclusion, do not treat a 2% shareholder of an S corporation
as an employee of the corporation. A 2% shareholder is someone who directly or
indirectly owns (at any time during the year) more than 2% of the corporation's
stock or stock with more than 2% of the voting power. Treat a 2% shareholder as
you would a partner in a partnership for fringe benefit purposes, but do not
treat the benefit as a reduction in distributions to the 2% shareholder.
taxmap/pubs/p15b-001.htm#en_us_publink1000193705This section discusses the exclusion rules that apply to
de minimis meals and meals on your business premises.
taxmap/pubs/p15b-001.htm#en_us_publink1000193706You can exclude any occasional meal or meal money you provide
to an employee if it has so little value (taking into account how frequently you
provide meals to your employees) that accounting for it would be unreasonable or
administratively impracticable. The exclusion applies, for example, to the
following items.
- Coffee, doughnuts, or soft drinks.
- Occasional meals or meal money provided to enable an employee
to work overtime. (However, the exclusion does not apply to meal money figured
on the basis of hours worked.)
- Occasional parties or picnics for employees and their guests.
This exclusion also applies to meals you provide at an employer-operated
eating facility for employees if the annual revenue from the facility equals or
exceeds the direct costs of the facility. For this purpose, your revenue from
providing a meal is considered equal to the facility's direct operating costs to
provide that meal if its value can be excluded from an employee's wages as
explained under
Meals on Your Business Premises, later.
 | If food or beverages you furnish to employees qualify as
a de minimis benefit, you can deduct their full cost. The 50% limit on
deductions for the cost of meals does not apply. The deduction limit on meals is
discussed in chapter 2 of Publication 535. |
taxmap/pubs/p15b-001.htm#en_us_publink1000193708For this exclusion, treat any recipient of a
de minimis meal as an employee.
taxmap/pubs/p15b-001.htm#en_us_publink1000193709An employer-operated eating facility for employees is an eating
facility that meets all the following conditions.
- You own or lease the facility.
- You operate the facility. You are considered to operate the
eating facility if you have a contract with another to operate it.
- The facility is on or near your business premises.
- You provide meals (food, drinks, and related services) at
the facility during, or immediately before or after, the employee's workday.
You can generally exclude the value of
de minimis meals you provide to an employee from the employee's wages.
taxmap/pubs/p15b-001.htm#en_us_publink1000193711You cannot exclude from the wages of a highly compensated employee
the value of a meal provided at an employer-operated eating facility that is not
available on the same terms to one of the following groups.
- All of your employees.
- A group of employees defined under a reasonable classification
you set up that does not favor highly compensated employees.
For this exclusion, a highly compensated employee for 2011 is
an employee who meets either of the following tests.
- The employee was a 5% owner at any time during the year or
the preceding year.
- The employee received more than $110,000 in pay for the preceding
year.
You can choose to ignore test (2) if the employee was not also
in the top 20% of employees when ranked by pay for the preceding year.
You can exclude the value of meals you furnish to an employee
from the employee's wages if they meet the following tests.
- They are furnished on your business premises.
- They are furnished for your convenience.
This exclusion does not apply if you allow your employee to choose
to receive additional pay instead of meals.
taxmap/pubs/p15b-001.htm#en_us_publink1000193713Generally, for this exclusion, the employee's place of work is
your business premises.
taxmap/pubs/p15b-001.htm#en_us_publink1000193714Whether you furnish meals for your convenience as an employer
depends on all the facts and circumstances. You furnish the meals to your
employee for your convenience if you do this for a substantial business reason
other than to provide the employee with additional pay. This is true even if a
law or an employment contract provides that the meals are furnished as pay.
However, a written statement that the meals are furnished for your convenience
is not sufficient.
taxmap/pubs/p15b-001.htm#en_us_publink1000193715If more than half of your employees who are furnished meals on
your business premises are furnished the meals for your convenience, you can
treat all meals you furnish to employees on your business premises as furnished
for your convenience.
taxmap/pubs/p15b-001.htm#en_us_publink1000193716Meals you furnish to a restaurant or other food service employee
during, or immediately before or after, the employee's working hours are
furnished for your convenience. For example, if a waitress works through the
breakfast and lunch periods, you can exclude from her wages the value of the
breakfast and lunch you furnish in your restaurant for each day she works.
taxmap/pubs/p15b-001.htm#en_us_publink1000193717You operate a restaurant business. You furnish your employee,
Carol, who is a waitress working 7 a.m. to 4 p.m., two meals during each
workday. You encourage but do not require Carol to have her breakfast on the
business premises before starting work. She must have her lunch on the premises.
Since Carol is a food service employee and works during the normal breakfast and
lunch periods, you can exclude from her wages the value of her breakfast and
lunch.
If you also allow Carol to have meals on your business premises
without charge on her days off, you cannot exclude the value of those meals from
her wages.
taxmap/pubs/p15b-001.htm#en_us_publink1000193718Meals you furnish during working hours so an employee will be
available for emergency calls during the meal period are furnished for your
convenience. You must be able to show these emergency calls have occurred or can
reasonably be expected to occur.
taxmap/pubs/p15b-001.htm#en_us_publink1000193719A hospital maintains a cafeteria on its premises where all of
its 230 employees may get meals at no charge during their working hours. The
hospital must have 120 of its employees available for emergencies. Each of these
120 employees is, at times, called upon to perform services during the meal
period. Although the hospital does not require these employees to remain on the
premises, they rarely leave the hospital during their meal period. Since the
hospital furnishes meals on its premises to its employees so that more than half
of them are available for emergency calls during meal periods, the hospital can
exclude the value of these meals from the wages of all of its employees.
taxmap/pubs/p15b-001.htm#en_us_publink1000193720Meals you furnish during working hours are furnished for your
convenience if the nature of your business restricts an employee to a short meal
period (such as 30 or 45 minutes) and the employee cannot be expected to eat
elsewhere in such a short time. For example, meals can qualify for this
treatment if your peak work-load occurs during the normal lunch hour. However,
they do not qualify if the reason for the short meal period is to allow the
employee to leave earlier in the day.
taxmap/pubs/p15b-001.htm#en_us_publink1000193721Frank is a bank teller who works from 9 a.m. to 5 p.m. The bank
furnishes his lunch without charge in a cafeteria the bank maintains on its
premises. The bank furnishes these meals to Frank to limit his lunch period to
30 minutes, since the bank's peak workload occurs during the normal lunch
period. If Frank got his lunch elsewhere, it would take him much longer than 30
minutes and the bank strictly enforces the time limit. The bank can exclude the
value of these meals from Frank's wages.
taxmap/pubs/p15b-001.htm#en_us_publink1000193722Meals you furnish during working hours are furnished for your
convenience if the employee could not otherwise eat proper meals within a
reasonable period of time. For example, meals can qualify for this treatment if
there are insufficient eating facilities near the place of employment.
taxmap/pubs/p15b-001.htm#en_us_publink1000193723Meals you furnish to an employee immediately after working hours
are furnished for your convenience if you would have furnished them during
working hours for a substantial nonpay business reason but, because of the work
duties, they were not eaten during working hours.
taxmap/pubs/p15b-001.htm#en_us_publink1000193724Meals you furnish to promote goodwill, boost morale, or attract
prospective employees are not considered furnished for your convenience.
However, you may be able to exclude their value as discussed under
De Minimis Meals, earlier.
You generally cannot exclude from an employee's wages the value
of meals you furnish on a day when the employee is not working. However, you can
exclude these meals if they are furnished with lodging that is excluded from the
employee's wages as discussed under
Lodging on Your Business Premises, earlier.
The fact that you charge for the meals and that your employees
may accept or decline the meals is not taken into account in determining whether
or not meals are furnished for your convenience.
taxmap/pubs/p15b-001.htm#en_us_publink1000193727For this exclusion, do not treat a 2% shareholder of an S corporation
as an employee of the corporation. A 2% shareholder is someone who directly or
indirectly owns (at any time during the year) more than 2% of the corporation's
stock or stock with more than 2% of the voting power. Treat a 2% shareholder as
you would a partner in a partnership for fringe benefit purposes, but do not
treat the benefit as a reduction in distributions to the 2% shareholder.
taxmap/pubs/p15b-001.htm#en_us_publink1000193728This exclusion applies to any amount you directly or indirectly
give to an employee, (including services furnished in kind) as payment for, or
reimbursement of, moving expenses. You must make the reimbursement under rules
similar to those described in chapter 11 of Publication 535 for reimbursement of
expenses for travel, meals, and entertainment under accountable plans.
The exclusion applies only to reimbursement of moving expenses
that the employee could deduct if he or she had paid or incurred them without
reimbursement. However, it does not apply if the employee actually deducted the
expenses in a previous year.
taxmap/pubs/p15b-001.htm#en_us_publink1000193729Deductible moving expenses include only the reasonable expenses
of:
- Moving household goods and personal effects from the former
home to the new home, and
- Traveling (including lodging) from the former home to the
new home.
Deductible moving expenses do not include any expenses for meals
and must meet both the distance test and the time test. The distance test is met
if the new job location is at least 50 miles farther from the employee's old
home than the old job location was. The time test is met if the employee works
at least 39 weeks during the first 12 months after arriving in the general area
of the new job location.
For more information on deductible moving expenses, see Publication
521, Moving Expenses.
taxmap/pubs/p15b-001.htm#en_us_publink1000193730For this exclusion, treat the following individuals as employees.
- A current employee.
- A leased employee who has provided services to you on a substantially
full-time basis for at least a year if the services are performed under your
primary direction or control.
Do not treat a 2% shareholder of an S corporation as an employee
of the corporation for this purpose. A 2% shareholder is someone who directly or
indirectly owns (at any time during the year) more than 2% of the corporation's
stock or stock with more than 2% of the voting power. Treat a 2% shareholder as
you would a partner in a partnership for fringe benefit purposes, but do not
treat the benefit as a reduction in distributions to the 2% shareholder.
taxmap/pubs/p15b-001.htm#en_us_publink1000193732Generally, you can exclude qualifying moving expense reimbursement
you provide to an employee from the employee's wages. If you paid the
reimbursement directly to the employee, report the amount in box 12 of Form W-2
with the code "P." Do not report payments to a third party for the employee's
moving expenses or the value of moving services you provided in kind.
taxmap/pubs/p15b-001.htm#en_us_publink1000193733This exclusion applies to a service you provide to an employee
if it does not cause you to incur any substantial additional costs. The service
must be offered to customers in the ordinary course of the line of business in
which the employee performs substantial services.
Generally, no-additional-cost services are excess capacity services,
such as airline, bus, or train tickets; hotel rooms; or telephone services
provided free or at a reduced price to employees working in those lines of
business.
taxmap/pubs/p15b-001.htm#en_us_publink1000193734To determine whether you incur substantial additional costs to
provide a service to an employee, count any lost revenue as a cost. Do not
reduce the costs you incur by any amount the employee pays for the service. You
are considered to incur substantial additional costs if you or your employees
spend a substantial amount of time in providing the service, even if the time
spent would otherwise be idle or if the services are provided outside normal
business hours.
taxmap/pubs/p15b-001.htm#en_us_publink1000193735A no-additional-cost service provided to your employee by an
unrelated employer may qualify as a no-additional-cost service if all the
following tests are met.
- The service is the same type of service generally provided
to customers in both the line of business in which the employee works and the
line of business in which the service is provided.
- You and the employer providing the service have a written
reciprocal agreement under which a group of employees of each employer, all of
whom perform substantial services in the same line of business, may receive
no-additional-cost services from the other employer.
- Neither you nor the other employer incurs any substantial
additional cost either in providing the service or because of the written
agreement.
For this exclusion, treat the following individuals as employees.
- A current employee.
- A former employee who retired or left on disability.
- A widow or widower of an individual who died while an employee.
- A widow or widower of a former employee who retired or left
on disability.
- A leased employee who has provided services to you on a substantially
full-time basis for at least a year if the services are performed under your
primary direction or control.
- A partner who performs services for a partnership.
Treat services you provide to the spouse or dependent child of
an employee as provided to the employee. For this fringe benefit,
dependent child
means any son, stepson, daughter, or stepdaughter who is a dependent of the
employee, or both of whose parents have died and who has not reached age 25.
Treat a child of divorced parents as a dependent of both parents.
Treat any use of air transportation by the parent of an employee
as use by the employee. This rule does not apply to use by the parent of a
person considered an employee because of item (3) or (4) above.
taxmap/pubs/p15b-001.htm#en_us_publink1000193737You can generally exclude the value of a no-additional-cost service
you provide to an employee from the employee's wages.
taxmap/pubs/p15b-001.htm#en_us_publink1000193738You cannot exclude from the wages of a highly compensated employee
the value of a no-additional-cost service that is not available on the same
terms to one of the following groups.
- All of your employees.
- A group of employees defined under a reasonable classification
you set up that does not favor highly compensated employees.
For this exclusion, a highly compensated employee for 2011 is
an employee who meets either of the following tests.
- The employee was a 5% owner at any time during the year or
the preceding year.
- The employee received more than $110,000 in pay for the preceding
year.
You can choose to ignore test (2) if the employee was not also
in the top 20% of employees when ranked by pay for the preceding year.
You may exclude from an employee's wages the value of any retirement
planning advice or information you provide to your employee or his or her spouse
if you maintain a qualified retirement plan as defined in section 219(g)(5) of
the Internal Revenue Code. In addition to employer plan advice and information,
the services provided may include general advice and information on retirement.
However, the exclusion does not apply to services for tax preparation,
accounting, legal, or brokerage services. You cannot exclude from the wages of a
highly compensated employee retirement planning services that are not available
on the same terms to each member of a group of employees normally provided
education and information about the employer's qualified retirement plan.
taxmap/pubs/p15b-001.htm#en_us_publink1000193740This section discusses exclusion rules that apply to benefits
you provide to your employees for their personal transportation, such as
commuting to and from work. These rules apply to the following transportation
benefits.
- De minimis transportation benefits.
- Qualified transportation benefits.
Special rules that apply to demonstrator cars and qualified
nonpersonal-use vehicles are discussed under
Working Condition Benefits, later.
You can exclude the value of any
de minimis
transportation benefit you provide to an employee from the employee's wages. A
de minimis
transportation benefit is any local transportation benefit you provide to an
employee if it has so little value (taking into account how frequently you
provide transportation to your employees) that accounting for it would be
unreasonable or administratively impracticable. For example, it applies to
occasional transportation fare you give an employee because the employee is
working overtime if the benefit is reasonable and is not based on hours worked.
taxmap/pubs/p15b-001.htm#en_us_publink1000193742For this exclusion, treat any recipient of a
de minimis transportation benefit as an employee.
taxmap/pubs/p15b-001.htm#en_us_publink1000193743This exclusion applies to the following benefits.
- A ride in a commuter highway vehicle between the employee's
home and work place.
- A transit pass.
- Qualified parking.
- Qualified bicycle commuting reimbursement.
The exclusion applies whether you provide only one or a combination
of these benefits to your employees.
Qualified transportation benefits can be provided directly by
you or through a bona fide reimbursement arrangement. However, cash
reimbursements for transit passes qualify only if a voucher or a similar item
that the employee can exchange only for a transit pass is not readily available
for direct distribution by you to your employee. A voucher is readily available
for direct distribution only if an employee can obtain it from a voucher
provider that does not impose fare media charges or other restrictions that
effectively prevent the employer from obtaining vouchers. See Regulations
section 1.132-9(b)(Q&A 16-19) for more information.
Generally, you can exclude qualified transportation fringe benefits
from an employee's wages even if you provide them in place of pay. However,
qualified bicycle commuting reimbursements cannot be excluded if the
reimbursements are provided in place of pay. For information about providing
qualified transportation fringe benefits under a compensation reduction
agreement, see Regulations section 1.132-9(b)(Q&A 11-15).
taxmap/pubs/p15b-001.htm#en_us_publink1000193744A commuter highway vehicle is any highway vehicle that seats
at least 6 adults (not including the driver). In addition, you must reasonably
expect that at least 80% of the vehicle mileage will be for transporting
employees between their homes and work place with employees occupying at least
one-half the vehicle's seats (not including the driver's).
taxmap/pubs/p15b-001.htm#en_us_publink1000193745A transit pass is any pass, token, farecard, voucher, or similar
item entitling a person to ride, free of charge or at a reduced rate, on one of
the following.
- On mass transit.
- In a vehicle that seats at least 6 adults (not including the
driver) if a person in the business of transporting persons for pay or hire
operates it.
Mass transit may be publicly or privately operated and includes
bus, rail, or ferry. For guidance on the use of smart cards and debit cards to
provide qualified transportation fringes, see Revenue Ruling 2006-57, 2006-47
I.R.B. 911, available at
www.irs.gov/irb/2006-47_IRB/ar05.html and Notice 2009-95, 2009-52 I.R.B. 968, available at
www.irs.gov/irb/2009-52_IRB/ar17.html.
Qualified parking is parking you provide to your employees on
or near your business premises. It includes parking on or near the location from
which your employees commute to work using mass transit, commuter highway
vehicles, or carpools. It does not include parking at or near your employee's
home.
taxmap/pubs/p15b-001.htm#en_us_publink1000193747For any calendar year, the exclusion for qualified bicycle commuting
reimbursement includes any employer reimbursement during the 15-month period
beginning with the first day of the calendar year for reasonable expenses
incurred by the employee during the calendar year.
Reasonable expenses include:
- The purchase of a bicycle, and
- Bicycle improvements, repair, and storage.
These are considered reasonable expenses as long as the bicycle
is regularly used for travel between the employee's residence and place of
employment.
For this exclusion, treat the following individuals as employees.
- A current employee.
- A leased employee who has provided services to you on a substantially
full-time basis for at least a year if the services are performed under your
primary direction or control.
A self-employed individual is not an employee for qualified transportation
benefit purposes.
taxmap/pubs/p15b-001.htm#en_us_publink1000193749Do not treat a 2% shareholder of an S corporation as an employee
of the corporation for this purpose. A 2% shareholder is someone who directly or
indirectly owns (at any time during the year) more than 2% of the corporation's
stock or stock with more than 2% of the voting power. Treat a 2% shareholder as
you would a partner in a partnership for fringe benefit purposes, but do not
treat the benefit as a reduction in distributions to the 2% shareholder.
taxmap/pubs/p15b-001.htm#en_us_publink1000193750You cannot exclude a qualified transportation benefit you provide
to an employee under the
de minimis
or working condition benefit rules. However, if you provide a local
transportation benefit other than by transit pass or commuter highway vehicle,
or to a person other than an employee, you may be able to exclude all or part of
the benefit under other fringe benefit rules (de minimis, working condition, etc.).
taxmap/pubs/p15b-001.htm#en_us_publink1000193751You can generally exclude the value of transportation benefits
that you provide to an employee during 2011 from the employee's wages up to the
following limits.
- $120 per month (see the
Caution
on page 1) for combined commuter highway vehicle transportation and transit
passes.
- $230 per month for qualified parking.
- For a calendar year, $20 multiplied by the number of qualified
bicycle commuting months during that year for qualified bicycle commuting
reimbursement of expenses incurred during the year.
For any employee, a qualified bicycle commuting month is any
month the employee:
- Regularly uses the bicycle for a substantial portion of the
travel between the employee's residence and place of employment and
- Does not receive:
- Transportation in a commuter highway vehicle,
- Any transit pass, or
- Qualified parking benefits.
If the value of a benefit for any month is more than its limit,
include in the employee's wages the amount over the limit minus any amount the
employee paid for the benefit. You cannot exclude the excess from the employee's
wages as a
de minimis transportation benefit.
taxmap/pubs/p15b-001.htm#en_us_publink1000193754For more information on qualified transportation benefits, including
van pools, and how to determine the value of parking, see Regulations section
1.132-9.
taxmap/pubs/p15b-001.htm#en_us_publink1000193755An educational organization can exclude the value of a qualified
tuition reduction it provides to an employee from the employee's wages.
A tuition reduction for undergraduate education generally qualifies
for this exclusion if it is for the education of one of the following
individuals.
- A current employee.
- A former employee who retired or left on disability.
- A widow or widower of an individual who died while an employee.
- A widow or widower of a former employee who retired or left
on disability.
- A dependent child or spouse of any individual listed in (1)
through (4) above.
A tuition reduction for graduate education qualifies for this
exclusion only if it is for the education of a graduate student who performs
teaching or research activities for the educational organization.
For more information on this exclusion, see Publication 970,
Tax Benefits for Education.
taxmap/pubs/p15b-001.htm#en_us_publink1000254352 | The benefits for volunteer firefighters and emergency medical
responders are scheduled to expire on December 31, 2010. See the Caution on page
1 for more information. |
taxmap/pubs/p15b-001.htm#en_us_publink1000193756An exclusion from gross income is available to volunteer firefighters
and emergency medical responders who are members of a qualified volunteer
emergency response organization.
After 2007, gross income does not include:
- Rebates or reductions of property or income taxes provided
by a state or local government for providing services as a member of a qualified
emergency response organization (defined below). Any such rebate or reduction
reduces the amount of the income tax deduction for such taxes.
- Qualified payments made by a state or local government for
providing services as a member of a qualified emergency response organization.
The exclusion is limited to $30 multiplied by the number of months the member
performs such services. A charitable deduction for expenses paid by the member
in connection with performing such services must be reduced by any payment
excluded from income.
A qualified volunteer emergency response organization is any
volunteer organization organized and operated to provide firefighting or
emergency medical services for persons in a state or local jurisdiction and
required by written agreement with that state or local jurisdiction to furnish
such services.
taxmap/pubs/p15b-001.htm#en_us_publink1000193757You can exclude any qualified state or local tax benefit and
any qualified payment from the employee's wages. The excluded wages are not
subject to federal withholding, social security tax, Medicare tax, and
unemployment tax.
taxmap/pubs/p15b-001.htm#en_us_publink1000193758This exclusion applies to property and services you provide to
an employee so that the employee can perform his or her job. It applies to the
extent the employee could deduct the cost of the property or services as a
business expense or depreciation expense if he or she had paid for it. The
employee must meet any substantiation requirements that apply to the deduction.
Examples of working condition benefits include an employee's use of a company
car for business and job-related education provided to an employee.
This exclusion also applies to a cash payment you provide for
an employee's expenses for a specific or prearranged business activity for which
a deduction is otherwise allowable to the employee. You must require the
employee to verify that the payment is actually used for those expenses and to
return any unused part of the payment.
For information on deductible employee business expenses, see
Unreimbursed Employee Expenses
in Publication 529, Miscellaneous Deductions.
The exclusion does not apply to the following items.
- A service or property provided under a flexible spending account
in which you agree to provide the employee, over a time period, a certain level
of unspecified noncash benefits with a predetermined cash value.
- A physical examination program you provide, even if mandatory.
- Any item to the extent the employee could deduct its cost
as an expense for a trade or business other than your trade or business.
For this exclusion, treat the following individuals as employees.
- A current employee.
- A partner who performs services for a partnership.
- A director of your company.
- An independent contractor who performs services for you.
If you provide a car for an employee's use, the amount you can
exclude as a working condition benefit is the amount that would be allowable as
a deductible business expense if the employee paid for its use. If the employee
uses the car for both business and personal use, the value of the working
condition benefit is the part determined to be for business use of the vehicle.
See
Business use of your car
under
Personal versus Business Expenses
in chapter 1 of Publication 535. Also, see the special rules
for certain demonstrator cars and qualified nonpersonal-use vehicles discussed
below.
However, instead of excluding the value of the working condition
benefit, you can include the entire annual lease value of the car in the
employee's wages. The employee can then claim any deductible business expense
for the car as an itemized deduction on his or her personal income tax return.
This option is available only if you use the lease value rule (discussed in
section 3) to value the benefit.
taxmap/pubs/p15b-001.htm#en_us_publink1000193761Generally, all of the use of a demonstrator car by your full-time
auto salesperson qualifies as a working condition benefit if the use is
primarily to facilitate the services the salesperson provides for you and there
are substantial restrictions on personal use. For more information and the
definition of "full-time auto salesperson," see Regulations section 1.132-5(o).
For optional, simplified methods used to determine if full, partial, or no
exclusion of income to the employee for personal use of a demonstrator car
applies, see Revenue Procedure 2001-56. You can find Revenue Procedure 2001-56
on page 590 of Internal Revenue Bulletin 2001-51 at
www.irs.gov/pub/irs-irbs/irb01-51.pdf.
All of an employee's use of a qualified nonpersonal-use vehicle
is a working condition benefit. A qualified nonpersonal-use vehicle is any
vehicle the employee is not likely to use more than minimally for personal
purposes because of its design. Qualified nonpersonal-use vehicles generally
include all of the following vehicles.
- Clearly marked, through painted insignia or words, police,
fire, and public safety vehicles.
- Unmarked vehicles used by law enforcement officers if the
use is officially authorized.
- An ambulance or hearse used for its specific purpose.
- Any vehicle designed to carry cargo with a loaded gross vehicle
weight over 14,000 pounds.
- Delivery trucks with seating for the driver only, or the driver
plus a folding jump seat.
- A passenger bus with a capacity of at least 20 passengers
used for its specific purpose.
- School buses.
- Tractors and other special-purpose farm vehicles.
- Bucket trucks, cement mixers, combines, cranes and derricks,
dump trucks (including garbage trucks), flatbed trucks, forklifts, qualified
moving vans, qualified specialized utility repair trucks, and refrigerated
trucks.
See Regulations section 1.274-5(k) for the definition of qualified
moving van and qualified specialized utility repair truck.
A pickup truck with a loaded gross vehicle weight of 14,000 pounds
or less is a qualified nonpersonal-use vehicle if it has been specially modified
so it is not likely to be used more than minimally for personal purposes. For
example, a pickup truck qualifies if it is clearly marked with permanently
affixed decals, special painting, or other advertising associated with your
trade, business, or function and meets either of the following requirements.
- It is equipped with at least one of the following items.
- A hydraulic lift gate.
- Permanent tanks or drums.
- Permanent side boards or panels that materially raise the
level of the sides of the truck bed.
- Other heavy equipment (such as an electric generator, welder,
boom, or crane used to tow automobiles and other vehicles).
- It is used primarily to transport a particular type of load
(other than over the public highways) in a construction, manufacturing,
processing, farming, mining, drilling, timbering, or other similar operation for
which it was specially designed or significantly modified.
A van with a loaded gross vehicle weight of 14,000 pounds or
less is a qualified nonpersonal-use vehicle if it has been specially modified so
it is not likely to be used more than minimally for personal purposes. For
example, a van qualifies if it is clearly marked with permanently affixed
decals, special painting, or other advertising associated with your trade,
business, or function and has a seat for the driver only (or the driver and one
other person) and either of the following items.
- Permanent shelving that fills most of the cargo area.
- An open cargo area and the van always carries merchandise,
material, or equipment used in your trade, business, or function.
Certain job-related education you provide to an employee may
qualify for exclusion as a working condition benefit. To qualify, the education
must meet the same requirements that would apply for determining whether the
employee could deduct the expenses had the employee paid the expenses. The
education must meet at least one of the following tests.
- The education is required by the employer or by law for the
employee to keep his or her present salary, status, or job. The required
education must serve a bona fide business purpose of the employer.
- The education maintains or improves skills needed in the job.
However, even if the education meets one or both of the above
tests, it is not qualifying education if it:
- Is needed to meet the minimum educational requirements of
the employee's present trade or business, or
- Is part of a program of study that will qualify the employee
for a new trade or business.
An employee's use of outplacement services qualifies as a working
condition benefit if you provide the services to the employee on the basis of
need, you get a substantial business benefit from the services distinct from the
benefit you would get from the payment of additional wages, and the employee is
seeking employment in the same trade or business of the employer. Substantial
business benefits include promoting a positive business image, maintaining
employee morale, and avoiding wrongful termination suits.
Outplacement services do not qualify as a working condition benefit
if the employee can choose to receive cash or taxable benefits in place of the
services. If you maintain a severance plan and permit employees to get
outplacement services with reduced severance pay, include in the employee's
wages the difference between the unreduced severance and the reduced severance
payments.
taxmap/pubs/p15b-001.htm#en_us_publink1000193767You can generally exclude the value of a working condition benefit
you provide to an employee from the employee's wages.
taxmap/pubs/p15b-001.htm#en_us_publink1000193768You cannot exclude the value of parking (unless
de minimis), transit passes (if their monthly value exceeds $120 (see
the
Caution
on page 1) per month), or the use of consumer goods you provide
in a product testing program from the compensation you pay to an independent
contractor who performs services for you.
taxmap/pubs/p15b-001.htm#en_us_publink1000193769You cannot exclude the value of the use of consumer goods you
provide in a product testing program from the compensation you pay to a
director.
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