Greetings and welcome to the IRS webinar on taxable fringe benefits. It is my pleasure to introduce your host, Raelane. RAELANE: Welcome to the IRS federal state and local presentation on taxable fringe benefits. My name is Raelane. BILLY: And my name is Billy. This webinar will help you understand taxable fringe benefits.

Before we begin, this presentation is informational only. Specific fringe benefit issues may depend on specific facts and circumstances. This information provides general guidance on items. RAELANE: What is a fringe benefit? A fringe benefit is a form of pay including property, services, cash or cash equivalent in addition to pay for the performance of services. Under the Internal Revenue Code, all income is taxable unless an exclusion applies.

A fringe benefit is a form of pay for the performance of services. For example, you give an employee a fringe benefit when you allow him or her to use a business vehicle to commute to and from work. A person who performs services for you doesn't have to be your employee. A person may work as an independent contractor. A benefit may fall under more than one Internal Revenue Code section. For example, education expenses up to $5,250 may be excluded from tax under Code Section 127. Education expenses exceeding $5,250 maybe excluded under tax from Code Section 132. A benefit an employer provides on behalf of an employee is taxable to the employee even if someone other than the employee, such as a spouse or a child receives the benefit.

BILLY: If a benefit is taxable, the employer reports it on Form W-2 as wages and generally is subject to federal income tax withholding, Social Security and Medicare taxes. If the employee's wages aren't normally subject to Social Security or Medicare taxes,for example the employee is covered by a qualifying public retirement system, these taxes would not apply to fringe benefits the employee received. For example, bonuses are always taxable because they are income under Code Section 61 and no Code Section excludes them from taxation. Because all income is taxable unless an exclusion applies for average benefits that do not meet any statutory requirements for exclusion are fully taxable. Although there are special rules and elections for certain benefits, in general, employer's report taxable fringe benefits as wages on form W-2 for the year in which the employee received them. If a specific Code Section excludes a benefit, then an employer does not reported on the form. For example, qualified health plan benefits are excludable under Code Section 105, so they are not listed on form W-2 in wages. Raelane, how are taxable fringe benefits valued? RAELANE: Generally, taxable fringe benefits are included in wages at their fair market value. Fair market value is the amount a willing buyer would pay an unrelated willing seller, either one forced to conduct the transaction and both having reasonable knowledge of the facts. In many cases, the cost and fair market value are the same. However, sometimes the fair market value and cost differ, such as when the employer's cost to provide a benefit is less than the value to the employee. You should reduce a benefit taxable amount by any amount paid by or for the employee. For example, an employee has a taxable fringe benefit with a fair market value of $300. If the employee pays $100 for the benefit, the taxable fringe benefit is $200. BILLY: Some fridge benefits are not taxable. Or are minimally taxable. If certain conditions are met. Some examples of excludable fringe benefits are health insurance, certain travel expenses and certain educational assistance.

The excluded benefits are not subject to federal income tax withholding, Social Security, Medicare, and federal and employer attacks. You can find more details on these and other Code Section exclusions in IRS publication 5137, fringe benefit guide. RAELANE: Allowances or reimbursements paid to employees for job-related expenses under an accountable plan are excluded from wages that are not subject to withholding. What is an accountable plan? It's an allowance or reimbursement policy not necessarily a written plan that meet three conditions: There is a business connection to the expenditure. The recipient radically accounts for the expenses within a reasonable period time. And the employee returns excess reimbursements or advances within a reasonable time period. Billy what is a nonaccountable plan? BILLY: A nonaccountable plan is an allowance or reimbursement program or policy that does not meet all three requirements for an accountable plan. Employer payments, including advancements, reimbursements, allowances and so on, made under a nonaccountable plan are taxable wages to the employee. Subject to all withholding when paid or when the employee constructively receives it.

Raelane what are de minimis fringe benefits? RAELANE: You can exclude the value of a de minimis been for 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 impractical. The de minimis fringe benefit rule does not specify a value threshold for benefits to qualify as de minimis. When the IRS determines on what is excludable, it will always depend all the facts and circumstances. The IRS has given advice at least once, in 2001, that a benefit valued at $100 did not qualify as de minimis. However, this technical advice addresses a specific situation and you cannot rely on it to address another situation. All the following maybe excludable de minimis fringe benefits if they are occasional or infrequent not routine: Personal use of a photocopier no more than 15% of total use. Group meals. Employee picnics. Theater or sporting event tickets. Occasional coffee, donuts or soft drinks. Flowers or fruit for special circumstances. Local telephone calls.

Traditional birthday or holiday gifts. Never cash. With a low fair market value. Commuting use of an employer's car if no more than once per month. Employer-provided local transportation. Personal use of a cell phone provided by the employer primarily for a business purpose. BILLY: Raelane just covered excludable de minimis fringe benefits. Generally, the benefits listed on the site are not excludable from income as de minimis but maybe excludable under other provisions of the law. The slide has some common examples of benefits that do not qualify as de minimis. For example, use of athletic facilities on the employer's premise by current or former employees, or their family members, maybe excludable from wages under Code Section 132. Refer to publication 15B, employer's tax guide to fringe benefits. Raelane, what about travel expenses. RAELANE: Qualifying expenses for travel are excludable if the employee incurs them for temporary travel on business away from the general area of their tax home. To be excludable from wages, the employee's travel must be substantially longer than an ordinary day's work, require an overnight stay or substantial sleep or rest. Reimbursements for allowable expenses are excludable from wages if the accountable plan rules are met. BILLY: Reimbursements that employees receive when they travel on business outside the area of their tax home may be excludable from wages. I want to cover some definitions and concepts for determining whether travel related expenses are excludable. These key concepts relate to determining whether travel related expenses are excludable, including tax home, away from home and temporary versus indefinite travel. Let's talk about tax home. In most cases, an employee's tax home is the general unity of their principle place of business. The employee may receive excludable travel reimbursements while temporarily away from their tax home for business. It doesn't matter if the employee's tax home is the employer's business office or the employee's residence. The tax home includes the entire metropolitan area, therefore the employee is not way from home and less they leave metropolitan area. Let's talk about away from home. What is away from home? To be allowed an expense reimbursement for business travel, including meals and lodgings, and excludable from income, the taxpayer must temporarily travel in the pursuit of business. The statutory phrase away from home has been interpreted by the U.S. Supreme Court to require the taxpayer to travel overnight or long enough to require substantial sleep or rest. So merely working overtime or at a great distance from the taxpayer residence is not an exclusion for reimbursements for travel expenses if the employee returns home without spending the night or stopping for substantial sleep or rest.

Let's define temporary versus indefinite travel. Reimbursements of travel expenses for temporary assignments away from the tax home or at a single location are generally not taxable to the employees. If the assignment is indefinite, or the employees are considered to have moved their tax home to the new work location. The employer must determine whether an assignment is realistically expected to last less than one year when the assignment begins. An assignment is generally considered temporary if it is realistically expected to be, and does in fact, last one year or less. An assignment is generally considered indefinite if it is realistically expected to last for more than one year. And as for substantiation methods, there are different methods to substantiate expenses. See publication 5137 or more detail. Finally got let's discuss reimbursements for travel expenses. For reimbursements for ordinary and necessary business expenses, an employee can incurs while traveling away from their home overnight to be excludable from taxable wages, the reimbursements must be made under an accountable plan. Remember the three conditions to be an accountable plan. Part number one expenses have a business connection.

Number two the employee adequately documents expenses, and number three the employee timely returns excess reimbursement. An accountable plan may include per diem rates for certain expenses. Raelane, let's talk about transportation expenses. RAELANE: Transportation expenses are costs for local business travel that isn't away from the tax home area overnight and are in the general vicinity of the principal place of business. To be excludable, reimbursements for transportation expenses must meet the accountable plan requirements that we previously mentioned. Excludable transportation expenses are daily transportation between one workplace location to another not residence. From the residents residents to the temporary work location outside the tax home area or in the same business regardless of distance. And between the employee's residence and another work location in the same business regardless of whether the work location is temporary and regardless of distance if the residence is the employee's principal place of business. If none of the situations apply, the transportation expenses are commuting costs and are taxable if reimbursed to the employee. BILLY: Transportation expenses may include air, train, bus, shuttle and taxi fares in area of tax home. Mileage expenses or costs of operating a vehicle. Tolls and parking fees. RAELANE: Transportation expenses do not include travel expenses, which we discussed earlier, for commuting costs. Commuting refers to travel between an employee's personal residents and mane or regular place of work. Commuting costs are not deductible business expenses and cannot be excluded from wages if provided by the employer. Billy, what about meals and lodging? BILLY: Sure. I love meals and lodging! The fair market value of meals or lodging and employer supplies maybe nontaxable to the employee. Code Section 119 excludes the value of meals and lodging the employer pays for under certain circumstances as shown on the slide. However, cash that the employer gives for meals is never excludable under this Code Section and neither are in-kind payments. In-kind refers to payments made in something other than cash. So if an employer reinforces an employee for meals and lodging with something other than cash, they don't qualify for this exclusion. When figuring out whether you have a federal tax liability for furnished meals or lodging, federal law takes precedence over state statute or an employment or union contract. The facts and circumstances and the requirements of Code Section 119 determine the liability for federal income, Social Security and Medicare taxes. RAELANE: To be excludable, meals must be provided on the business premises and for the employer assess convenience. Under regulations, the business premises are a place where the employee performs a significant portion of duties, the premises where the employer conducts a significant portion of his or her business. An example might be an employer requires employees to attend a monthly staff meeting at lunchtime. The employees get a boxed lunch delivered from a local deli. Because these meals are given to the employer's convenience the employer is asking employees to remain on-site for this meeting, the cost of the lunch is not taxable. BILLY: Meals are provided for the employer's convenience if they are given for a substantial noncompensatory business reason. That is, the intention is not to pay the employee extra pay. This determination depends on the facts and circumstances of the case.

For example, an employer furnishes meals during working hours so that the employee is available for emergency calls during the meal, as when firefighters stay at the firehouse. You must have evidence that emergencies occur. Another example: An employer gives meals to employees in a remote site because you aren't enough eating facilities in the area, such as at a remote logging camp. Or a bank set a short meal period and supplies meals to employees because it experiences its highest customer demand during the lunch hour and does not allow the employee to leave earlier. However, meals given to employees to improve general morality or goodwill or to attract prospective employees aren't substantial business reasons and are taxable wages to the employee because they are a form of pay. Raelane, what is the difference between meals and lodging when traveling and day meals? RAELANE: Billy got reimbursements for meals and lodging expenses and employee incurs will traveling away from home overnight for business reasons maybe excludable. These expenses generally are under the rule for travel expenses. Whether these reimbursements or allowances are taxable depends on the three conditions. One, whether the meals and lodging expenses are connected to the business travel. Two got whether they are substantiated and three whether the reimbursements or allowances meet the accountable plan rules to be excludable. As with other travel related expenses, the general area of work, not the employee's residence got determines the tax on. As a reminder, the requirements of traveling away from home are met when the employee travels away from the general area of the tax on substantially longer than an ordinary day's work and requires an overnight stay or substantial sleep or rest to meet the demands of the work. Billy cut can you explain what day meals are?

BILLY: Day meals are when an employee travels for work during the day but does not stay overnight. Generally get these meals are taxable as wages to the employee because travel expenses must be away from home overnight to be excludable. In the example on the slide although the employee is away from their attacks on for substantially longer than a normal workday and even stops for us, the rest is not considered to be substantial. The employee isn't considered to be away from home overnight. Any meal money the employee receives is taxable as wages. You can see publication 5137 for additional examples of is this where courts and the IRS have not found have and have not found the sleep/rest test was met. Raelane, let's talk about employer-provided vehicles. RAELANE: If an employer provides a vehicle to use exclusively for business purposes and the substantiation requirement are met, there are not tax consequences or report it required for using it. The employees use is treated as a working condition fringe benefit. Business use does not include commuting. Employees should keep records to substantiate that all their vehicle use was for business. Working condition fringe benefits include property or services that, if the employee had paid for the property or service, the cost would have been allowable as a business expense deduction to the employee. That is, if the cost of an item is an allowable business expense deduction for the employee, it may be excludable on the employee's wages as a working condition fringe benefit if abided by the employer. If an employee uses an employer-provided vehicle for both business and personal purposes, substantiated business use is not taxable to the employee. But the tax exemption is limited to the business use.

Any personal use is taxable to the employee as wages. The employer can choose to include all use as wages. In this case, the employee may reimburse the employer for personal use rather than having it treated as wages. Examples of taxable personal use of an employer-provided vehicle include commuting between residents and work. Vacation or weekend use. Used by a spouse or dependent. There may be eight de minimis use exception to the personal use limitation.

Examples of de minimis use of an employer-provided vehicle include small limited personal detour while on business, such as driving to lunch while what of the office on business. Infrequent no more than one day per month commuting in the employer vehicle. This does not mean that an employee can receive excludable reimbursements for commuting 12 days a year. The rule is available to cover infrequent, unplanned, and occasional situations. BILLY: Personal use of an employer's vehicle that does not qualify for an exclusion creates taxable wages to the employee.

Use the following procedures to determine how much to include in wages on the employee's form W-2.

Under the general valuation rule for fringe benefits, the amount to include income is fair market value, which is generally the lease all you of the vehicle. But other rules may apply in certain circumstances. There are three automobile valuation rules employers can use to compute the taxable personal use of the employer-provided vehicle. Refer to publication 15B for details to the methods and restrictions for each valuation rule. RAELANE: And employee's use of a qualified nonpersonal use vehicle, including commuting cut is excludable from wages as a working condition fringe benefit if the specific requirements for the type of vehicle are met. The IRS does not require the employee to keep records and document expenses. A qualified nonpersonal use vehicle is any vehicle that the employee is not likely to use more than minimally for personal purposes because of its design. Went you're looking at this list of qualified nonpersonal use vehicles, the first two refer to law enforcement vehicles. These vehicles are deemed nonpersonal use vehicles when a public safety officer drives them. A public safety officer is an individual serving a public agency in an official capacity, with or without compensation, as a law enforcement officer or a firefighter. Chaplain or member of a rescue squad or ambulance crew. Let's discuss clothing, Billy. BILLY: Clothing or uniforms are excluded from an employee's wages if they are: One, specifically required as a condition of employment and two, not warrant or adaptable to general use as ordinary clothing.

These closing conditions must be met to be excluded from wages. Examples of clothing that do not meet the two part exclusion would be blue genes. Polo shirts. Khaki pants. Athletics use.

Suits and the like. Required uniforms are not taxable to the employees if the employer reimburses the employees to buy uniforms that are not adaptable to general use and are not worn for general use and the employees substantiate the expenses. Exceptions may exist for uniformed police and fire responders. If the employer doesn't require substantiation, the allowance or reimbursement is taxable as wages and subject to withholding when paid. RAELANE: Safety equipment is excludable from employee wages if the equipment is provided to help the employees perform their job in a safer environment. To be excludable, the equipment does not have to be required by the employer. However, the accountable plan rules must be met for reimbursements for safety equipment. BILLY: Employer reimbursements to employees for the cost of their professional licenses and professional organization dues may be excludable if directly related to the employee's job. Once an employee has completed the education or experience required for a professional license, expenses to maintain a license or status are considered ordinary and necessary. If the employer pays or reimburses expenses, the reimbursements are a working condition fringe benefit. If reimbursed under an accountable plan, they are excludable from the employee's wages. On the other hand, if they are reimbursed under a nonaccountable plan, they are included in the employee's wages and subject to federal income, Social Security and Medicare taxes.

Payment or reimbursement of dues to business clubs organized for business purposes are excludable from income if the organization is related to the employer's business. And the employee is performing duties for the employer that are related to the professional organization's focus or mission. Entertainment and recreational club dues and memberships are not allowed as business deductions. If an employer provides these benefits to an employee, they are taxable to the employee and subject to withholding for income tax, Social Security and Medicare. Similarly, and employer paying club dues is a taxable fringe benefit. No business deduction is allowed for club dues. They are taxable to the employee and subject to income tax withholding, Social Security and Medicare taxes. Raelane, what about educational benefits? RAELANE: Employers sometimes pay an employee's educational expenses or reimburse them for educational expenses. Also, many educational institutions give employees free or reduced cost education. To determine whether the reverse vent or value of the education is excludable from an employee's wages, first determine which code sections apply. There are three sections of the code that permit the payments or reimbursements to be excludable from wages under certain circumstances. And educational payment that is not exempt from tax under one Code Section maybe exempt under a different section.

And educational benefit under Code Section 132 working condition fringe benefits can be excludable only if benefits under any other Code Section do not apply. BILLY: To be excludable from an employee's income as a working condition fringe benefit, the educational course must be job-related, and either maintain or improve job skills, or be expressly required by the employer or by law. Examples of qualifying and excludable courses include work towards an advanced degree necessary to retain the job or pay level. To be excludable, these educational courses must not be needed to meet the minimum education requirements of the current job, or qualify the employee for a new trade or business. Raelane, what do we mean by qualifying for a new trade or business? RAELANE: Generally, courses that qualify an employee for a new position or specialty within their existing trade or business are not excludable as a working condition fringe benefit. These are qualifying an employee for a new trade or business. Examples up excludable courses that qualify employees for a new position rather than a new trade or business include teacher to principal or guidance counselor. Elementary school teacher to secondary school teacher.

Or teacher in one subject area to a teacher in another subject area. Often, courses needed for acquiring a license or certificate are considered leading to a new trade or business.

Examples include an accountant to CPA, CPA to lawyer, or mechanic to engineer. BILLY: Let's talk about Section 127 educational assistance plans. Under an educational assistance plan, an and employer may exclude up to 5,250 of the education cost of each employee's wages if certain requirements are met. The education maybe it undergraduate or graduate level and is not required to be job-related. Under Code Section 127 D4 requirements are the employer must have a written plan. The plan may not offer other benefits that can be selected instead of education.

Assistance does not exceed 5,250 per calendar year for all employers of the employee combined.

The plan must not discriminate in favor of highly compensated employees 42021, employees receiving $130,000 or more in the previous year. Individuals who may qualify for this benefit include current and laid-off employees, employees retired or on disability, and certain self-employed individuals. However, spouses or dependents of employees are not eligible. So that's Section 127. We also mentioned that some employers qualified scholarships or tuition reductions maybe excludable. You can find more information on Section 117 in pub 5137. So Raelane, how about group term life insurance? RAELANE: And employer may exclude the imputed cost of two $50,000 of employer-provided coverage under a group term life insurance plan if it gives a general death benefit that is not included in income. It covers a group of employees generally at least 10 full-time employees at sometime during the year. It gives 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. It is a policy carry carried directly or in directly by the employer. Even if the employer doesn't pay any of the policy's cost cut the employer is considered to carry it it arranges for payment of its cost by its employees and charges at least one employee less than, and at least one employee more than, the cost of their insurance. BILLY: The employer must include in employee's wages the imputed cost of group term life insurance for more than $50,000 worth of coverage, less the amount the employee pay towards insurance. To determine the amount to include in employee wages, don't use the actual cost. You must use the table in the regulations. This table lists a monthly cost per $1,000 of coverage. Can also find this table in publication 15B labeled as table 2-2. Uses table to determine the value of additional coverage to include in wages. Raelane could you talk about the Tax Cuts and Jobs Act? RAELANE: For 2018 through 2025, employers must include weaving expense reimbursements in employees' wages. The Tax Cuts and Jobs Act to suspend seclusion for qualified moving expense reimbursements from employees income for tax years 2018 to 2025. The act also suspended bicycle commuting reimbursements and lowered the withholding rate on supplemental wages. Check IRS.gov for important annual announcements. Billy, do you have any additional resources for the audience? BILLY: Yes! Be sure to review table 2-1 in publication 15B that illustrates the special rules for taxability of various types of ridge benefits. You can also review these publications. A copy of this video will be available online at IRS videos.gov in about two weeks. To follow IRS on social media, oh two IRS.gov/social media.

Thank you for joining us. And have a great day. [END OF SESSION]