Chapter 12 - Other Employee Benefits Flashcards
The value of meals and lodging provided by the employer is excluded, provided the following criteria are met.
Meals: Furnished by employer, on employer’s premises, and for employer’s convenience.
Lodging: Employee must accept as a condition of employment.
Example - Tom, a hotel manager, is required to live in a hotel room. The room’s value is excluded from his income because it’s furnished for the employer’s convenience.
Describe the prepaid legal services benefit.
Fringe benefit providing legal services to employees.
Employer pays the cost, deductible by employer, taxable to employee.
What are the advantages and disadvantages of the prepaid legal services benefit?
Advantages:
Affordable legal help for low- or middle-income families. Wide variety of legal services covered.
Disadvantages:
Complex administration and funding. Taxable value of services to employee.
Describe the included services, and excluded services, for the prepaid legal services benefit.
Included Services:
Bankruptcy assistance, divorce and child custody, estate planning, adoption, general legal counsel.
Excluded Services:
IRS audits, class action suits, actions against the employer.
Describe the tax exclusion for the Child and Dependent Services benefit.
Up to $5,000 per year ($2,500 if married filing separately) for services enabling an employee to work.
Must meet nondiscrimination requirements.
Regarding the benefit, Athletic Facility Provided to Employees, describe the exclusion from income.
Health facility or gymnasium on employer’s premises.
Dues paid to private health clubs are taxable to the employee.
Regarding the Educational Assistance benefit, describe the exclusion from income.
Employer-provided educational assistance at undergraduate and graduate levels, up to $5,250 annually.
Regarding the No Additional Cost Services benefit, describe the criteria for exclusion from income.
Services offered by the employer in the ordinary course of business without substantial additional cost.
Must be services, not property.
Regarding the No Additional Cost Services benefit, describe both the Nondiscrimination Provision, as well as the Nondiscrimination Requirement.
Provision: If discriminatory, highly compensated employees are denied exclusion treatment.
Requirement: Must not favor highly compensated employees.
Define De Minimis Fringe Benefits.
Benefits so small that it would be impractible to account for them, for instance, occasional personal use of a company-owned computer or copy machine.
Define Qualified Transportation Fringe Benefits.
Nontaxable.
Transportation in a commuter vehicle, transit passes, and qualified parking (exclusion limits apply).
Describe Dental Insurance.
Typically group coverage.
Premiums paid by employer are tax deductible, benefits received by employees are tax-free.
Describe the Voluntary Employees’ Beneficiary Association (VEBA).
Welfare benefit plans funded by employer deposits, used for future employee benefits.
Set up as a trust or corporation, income exempt from regular income tax if meeting requirements.
Describe the tax benefits for the Voluntary Employees’ Beneficiary Association (VEBA), as well as the complexity & cost.
Tax Benefits:
* Employer’s contributions are fully deductible in the year made.
* Reduces individual employee risk, as funds are protected in an irrevocable trust.
Complexity and cost:
* Complex and costly to install and administer.
Define the permitted benefits and the excluded benefits for Voluntary Employees’ Beneficiary Association (VEBA).
Permitted Benefits:
* Life insurance, sickness and accident benefits, other benefits like vacation, severance pay, unemployment benefits, disaster benefits, legal service payments.
Excluded Benefits:
* Savings, retirement, or deferred compensation.
* Commuting expenses, accident, and homeowners insurance, unrelated items.
Excluded Benefits:
* Savings, retirement, or deferred compensation.
* Commuting expenses, accident, and homeowners insurance, unrelated items.
