Compensation Flashcards
2021 Adoption Assistance limits
- $14,440 excludable from income
- Excludable amount starts to phase out for employees with annual income of $216,660 and phases out completely for those making $256,660 or more.
2021 dependent care assistance maximum
$5K/year, $2,500 for married employees filing separate returns.
2021 foreign earned income exclusion
$108,700
2021 foreign housing exclusion
- $47.65 for each qualifying day
- $15,218 for the calendar year
2021 formula to calculate additional FIT and Medicare wages for employer-paid employee taxes if stated wages is more than $127,165.95
(((Stated Pay - $127,165.95) / .9855) + $137,700)
2021 formula to calculate additional social security wages for employer -paid employee taxes if stated wages is more than $127,165.95
Social security wages = max wage base of $142,800
2021 formula to calculate additional social security wages for employer-paid employee taxes if stated wages is more than $127,165.95
Social security wages = max wage base of $142,800.
2021 formula to calculate additional wages for employer-paid employee taxes if stated wages is $127,165.95 or less
Stated wages / .9235
2021 formula to calculate the taxable value of a company car using the Cents-Per-Mile Rule
Personal miles drive x $0.56
2021 formula to calculate the taxable value of a company car using the Commuting Rule
For each employee in the vehicle, multiply each one-way commute the employee makes in the vehicle by $1.50
2021 Health FSA maximum
$2,750
2021 HSA Contribution Limits
$3,600 Individual; $7,200 Family; 55 or older additional $1,000 allowable catch-up contributions each year.
2021 maximum excludable amount for bicycle commuting
$0.00 Bicycle commuting reimbursements are fully taxable
2021 maximum excludable amount for qualified parking
$270 per month
2021 maximum excludable amount for transit passes and commuter highway vehicles
$270 per month combined
2021 mileage rate
56 cents per mile IRS
Another name for Nonqualified Stock Options
Nonstatutory stock options.
Are 3rd party sick pay payments subject to federal income tax withholding after an employee’s death?
No
Are below market rate and interest-free loans taxable?
Yes, if the loan is over $10,000 or if under $10,000 and the principal purpose of the loan is to avoid federal tax.
“Back pay” definition
Pay received during the current tax year for “actual or deemed employment” in a previous tax year.
Basis IRS looks at when determining if meal allowance is occasional.
Individual basis (not on a group basis)
Belo Plan
A salary method of compensation that includes expected overtime pay.
Box 12 Form W-2 code for Adoption Assistance
Code T
Cafeteria plans are covered under what section of the Internal Revenue Code?
Section 125
Can a business provide tax-free no additional cost services to the employees of a different company?
Yes, if the 2 companies have a written reciprocal agreement to provide services to each other’s employees.
Can an employer offset Jury Duty fees an employee receives against wage for exempt and/or nonexempt employees.
Yes, for both.
Can educational assistance amounts in excess of $5,250 be excluded from income?
Yes, if they qualify as working condition fringe benefits.
Criteria to determine if a payment is a tip vs. non-tip wages.
- The payment must be made free from compulsion
- The customer must have the unrestricted right to determine the amount
- The payment should not be the subject of negotiation or dictated by employer policy
- Generally the customer has the right to determine who receives the payment
Deadline for employee’s to report tips received from customers to their employer.
The 10th of the month after the month the tips are received. No report is required when tips are less than $20.00
Define an achievement award.
Tangible property awarded to an employee based on length of service or safety achievement.
Define an employer’s agent with regard to sick pay.
- 3rd party who bears no insurance risk.
- Is reimbursed by the employer on a cost plus-fee basis.
Define an excess parachute payment.
If a payment equals or exceeds 3 times the average annual compensation of the recipient over the previous 5-year period it’s this. The entire amount that exceeds the 5-year average is the excess.
Define a “reasonable period” with regard to employee travel advances?
- Receive the advance within 30 days of incurring expenses
- Account for the advance with 60 days of incurring expenses
- Return excess within 120 after incurring expenses
Define a temporary work assignment
Lasts for 1 year or less
Define de minimis fringe benefits
- A service or property, which has such little value that, it’s unreasonable or administratively impracticable to quantify
- No amount of cash is considered de minimus
Define “engaged to be waiting” time
Employee is on the employer’s premises, does not have ample time to conduct personal business and is merely waiting for a short period until they can commence work.
Define Group Term Life insurance
- Must provide at least 10 full-time employees
- Coverage level is formula based using age, years of service, pay or position to determine amount of insurance for each employee
- Insurance provides a general death benefit
- Employer directly or indirectly carries the policy
- Excludes life insurance coverage on employee spouse or dependents, travel insurance, accidental death insurance and insurance that provides a benefit that extends beyond one year.
Define no additional cost fringe benefits.
Employer provides services, which it normally offers to customers, to employees incurring no substantial additional cost to the employer
Define overtime in excess of the FLSA standard
Double-time, triple time or overtime pay of at least 1.5 times pay for working over 8 hours per day or weekends or holidays.
Define the “Special Accounting Rule.”
- You may treat the value of taxable noncash fringe benefits as paid on any frequency but not less than annually
- You may report benefits actually provided during the last two calendar months of the year as paid in the following year
Define “Waiting to be engaged” time
Employee is free from all work duties for a specified period of time. The employee has sufficient time to conduct personal business before returning to work.
Define working condition fringe benefits
Value of property or services the employer provides to the employee that the employee could deduct as a business expense if the employee had paid for it.
Define a workweek
A period of 168 consecutive hours (7 days x 24 hours)
De minimus fringe benefits
Employer provided property or services of small value to employees without including the value in the employee’s income for taxation purposes
Difference between Educational Assistance and Tuition Reduction
- Educational Assistance is reimbursement of employee education expenses
- Tuition Reduction is when an educational organization offers its employees a lower rate of tuition
Education costs not excludable from income.
- Lodging - Meals - Transportation - Equipment & tools the student may keep at the end of the course
Education costs that may be excluded from income.
- Tuition - Books - Fees - Supplies & Equipment the student may not keep at the end of the course
Examples of changes in family status that allow employee to change cafeteria plan elections.
- Marriage or divorce - Birth or Adoption - Termination or start of employment of the employee’s spouse - Employee or spouse switching from FT to PT or vice versa - Employee or spouse take unpaid LOA - Significant changes in the health coverage of the employee or spouse attributable to spouse’s employment - To revoke, election for employer’s group health coverage, other than FSA, to purchase a plan through a competitive marketplace under the PPACA either due to reduction in hours to less than 30 hrs per week or to prevent duplicate coverage
Examples of de minimis fringe benefits
- Occasional personal use of office equipment - Holiday gifts with low fair market value - GTL on employee’s spouse or dependent if the face amount is not more than $2k - Occasional parties or picnic - Occasional tickets for entertainment or sporting events - Occasional meals or meal money to enable employees to work overtime - De minimis transportation fare - Electronic filing of an employee’s tax return by the employer - Volunteer Income Tax Assistance (VITA) program.
Examples of noncompensatory reasons an employer may provide a cell phone
- Need to contact the employee at all times for work-related emergencies - Requirement that the employee be available to speak with clients at times when the employee is away from the office - Need to speak with clients located in other time zones at times outside the employee’s normal workday
Factors IRS considers to determine if meal allowance is occasional
- Availability, regularity and routine with which provided - If provided under existing company policy or a collective bargaining agreement as opposed to at the employer’s discretion
Fair Market Value
The amount it would cost an individual to purchase the benefit on the open market in an “arm’s length transaction”
Federal income tax withholding requirements for employer 3rd party agent paid sick pay.
Federal income tax withholding is required.
Federal income tax withholding requirements for employer paid sick pay.
Federal income withholding is required.
Federal income tax withholding requirements for insurance company paid sick pay
Federal income taxable but withholding is voluntary at the employee’s discretion
Federal taxability of accrued wages paid in the year of death
- Exempt from FIT - Subject to social Security & Medicare taxes.
Federal taxability of ESPP
- Purchase discount is reportable as FIT wages
- FIT withholding is not required
- Exempt from social security, Medicare and FUTA
Federal taxability of group-term life insurance in excess of $50K
FIT taxable, not withholdable
FICA taxable
FUTA exempt
Federal taxability of military differential
- Taxable for federal income tax
- Nontaxable for social security, Medicare and FUTA
Federal taxability of NQSO
Upon exercise fair market value less amount paid for options is FIT, social security and Medicare taxable.
Federal taxability of supplemental unemployment benefits
- Generally exempt from social security, Medicare and FUTA
- Exempt from FIT to the extent the employee paid for the benefit with after-tax dollars.
Federal taxability of transportation or transit pass reimbursements an employee receives in excess of the allowable maximums
Fully Taxable Cannot treat as de minimis
Federal taxability of Tuition Reduction
Nontaxable
Form(s) you report accrued wages paid in the year of death.
- Report social security and Medicare wages and taxes on Form W-2 under the deceased employee’s name and SSN
- Report federal wages on Form 1099-MISC, box 3 “Other Income” under the name and taxpayer ID number of the estate or beneficiary
Form(s) you use to report accrued wages paid in the year after death.
Report federal wages on Form 1099-MISC, box 3 “Other Income” under the name and taxpayer ID number of the estate or beneficiary
Form to report Directors’ fees
Form 1099-MISC
Form to report golden parachute payments.
Form W-2 for payments to employees. 1099-MISC for payments to nonemployees.
Formula to calculate GTL taxable wages.
- Step 1 insurance coverage, rounded to the nearest $100, minus $50K
- Step 2 Divide results from Step 1 by $1,000
- Step 3 Look up monthly cost based on the employee’s age on the last day of the tax year
- Step 4 Multiply the result from Step 2 by the monthly cost figure for step 3
- Step 5 Multiply the result in step 4 by 12 to annualize the cost.
- Step 6 Subtract the annual amount the employee paid for the coverage to arrive at the annual cost to include as wages.
Formula to calculate overtime for an hourly employee
Total pay for workweek divided by total hours worked = regular rate of pay. Regular rate of pay .5 overtime hours = overtime pay
Formula to calculate overtime for a pieceworker
Piece rate pieces = total pay for workweek. Total pay for workweek divided by actual hours worked = regular rate of pay. Regular rate of pay .5 X overtime hours = overtime premium
Formula to calculate overtime for a salaried employee with a fixed workweek.
Weekly salary divided by fixed workweek hours = regular rate of pay. Overtime hours regular rate of pay 1.5 = premium pay for overtime.
Formula to calculate overtime for a salaried employee with a fluctuating workweek.
Weekly salary divided by actual total hours worked = regular rate of pay. Overtime hours regular rate of pay .5 = premium pay for overtime.
Formula to calculate the taxable value of a company car using the Lease Value Rule for a vehicle with a fair market value over $59,999
((Fair market value of the vehicle 25%) + $500) = Annual Lease Value (ALV). ALV % of personal use = Taxable Annual Value
Formula to calculate the taxable value of a company car using the Lease Value Rule for a vehicle with a fair market value up to $59,999.
Using the fair market value of the vehicle lookup the corresponding annual lease value. Annual lease value x % of personal use = taxable value
Formula to pro-rate the taxable value of a company car if an employee uses the car for less than a full calendar year.
(Taxable annual value x (days used/365))
The general valuation rule
Method for computing the taxable value for personal use of a company car. Taxable value is the fair market value an employee would have to pay to lease a similar vehicle
how do you determine the taxable income to an employee a company gives a below-market rate or interest-free loan?
Difference between the current applicable federal rate and the interest rate on the loan.
How do you report military differential pay?
Report on Form W-2 box 1
How is overtime calculated when the workweek is changed?
At the time of transitioning the workweek the employer must calculate the overtime based on both the old workweek and new workweek and pay the higher amount.
How long must an employee hold an ISO to qualify for long-term capital gain rates when sold?
Hold shares for 1 year from date of exercise and 2 years from date of grant.
How many hours must fire protection employees and law enforcement work before becoming eligible for overtime?
Fire over 212 hours in a 28 day work period. Law over 171 hours in a 28 day work period.
If a business provides retirement planning advice to its’ employees, is the benefit taxable?
No
If an employee elects to receive cash in lieu of a benefit under a cafeteria plan, is the cash taxable wages?
Yes
If an employee sells an ISO before the required holding period, what is the sale called?
A “disqualifying disposition”
If an employee terminates, how long do they have to exercise ISOs and ESPPs?
3 months from termination date.
If any portion of supplemental unemployment benefits is FIT taxable, how should you withhold?
Bases on the Employee’s Form W-4
If on duty 24 hours or more, what is the maximum number of sleeping hours that may be excluded from wages.
8 hours
If state overtime law varies from federal law, which law should you follow?
The law most favorable to the employee.
In what year is back pay reported on Form W-2?
In the year paid.
Is compensatory time off allowable under FLSA?
For public sector employees and exempt private sector employees.
Is “engaged to be waiting” time compensable?
Yes
Is federal income tax withholding required upon disposition of ESPP shares?
No. Purchase discount is reportable as FIT wages but withholding is not required.
Is FIT withholding required from sick pay?
- Employer paid or 3rd party agent paid on a cost plus fee basis
- FIT is required
- When responsibility to pay is transferred to an insurance company or other 3rd party
- FIT withholding is voluntary, only withhold if employee requests on Form W-4S
- Even when FIT withholding is not required, payments are FIT reportable
Is overtime in excess of FLSA standard included in the regular rate of pay?
No
Is paid on-call time counted as hours worked towards overtime?
Yes
Is the taxability of supplemental unemployment benefits dependent on whether the employee was voluntarily or involuntarily terminated?
No
Is unpaid on-call time counted as hours worked towards overtime?
No
Is vacation/holiday/sick pay for unworked hours included in the regular rate of pay?
No
Is “waiting to be engaged” time compensable?
No
Key points of a Belo plan
- The work, not the employer, must necessitate irregular hours
- Max hours worked for guaranteed compensation is 60 hours
- Over that must be paid overtime
- Must have contract or agreement between the employer and the employee
- Hours must fluctuate above and below 40 hours/week
- Employee can’t be entitled to other compensation that impacts the regular rate of pay
Key points of an employee business expense accountable plan.
- Employee must have paid or incurred deductible expense while performing services for employer
- Employee must substantiate expense to employer within a reasonable period of time
- Employee must return to employer within a reasonable time any amount in excess of the substantiated amount
Key points of an employee business expense nonaccountable plan.
- Expenses not substantiated
- Excess advances not required to be returned
- Employee receives amount regardless of whether employer expected the monies to be spent on business expenses.
List 3 conditions for meal money to be considered de minimis
- Occasional
- Provided for Overtime Work
- Enables Overtime Work
List the qualified benefits under a cafeteria plan
- Accident and health benefits (excluding Archer medical savings accounts or long-term care insurance)
- Flexible spending arrangements (FSA)
- Adoption assistance
- Dependent Care assistance
- Group-term life insurance
- Health savings accounts
Maximum annual excludable amount for achievement awards
$1600 per employee total for qualified and nonqualified awards $400 per employee for awards that are not qualified
Maximum comp time fire and law enforcement employees can accrue
480 hours
Maximum comp time public employees other than fire and law enforcement can accrue
240 hours
Maximum employee discount that may be excluded from income.
20%
Maximum excludable amount for Educational Assistance
$5,250/year
Moving expenses excludable for wages.
- None
- Exclusion was suspended effective 12/31/17 as part of the Tax Cuts and Jobs Act of 2017
- Report amounts paid directly to employee or paid to third parties as taxable wages on W2 and withhold all taxes.
No-additional-cost services
Employer may offer free services to its employees without including the fair market value of those services in the employees’ income
Nontaxable Fringe Benefits
IRC 132 exempts certain fringe benefits from inclusion in income. They are not subject to federal income tax withholding or social security, Medicare or FUTA taxes.
Number of work periods in a year for fire and law enforcement.
13 work periods (28 days x 13 work periods = 364 days)
Once defined, can an employer change the workweek
Yes
Overtime rules for hospital employees.
1.5 times regular rate of pay for the greater of hours worked over 8/day or hours worked over 80 in a 14 day work period.
Payroll deductions under a cafeteria plan are exempt from what federal taxes?
FIT, Social Security, Medicare and FUTA
Portion of back pay is excluded from wages
Amounts for personal injury, interest penalties and legal fees.
Portion of overnight business trip travel time that is compensable under the FLSA
Travel during regular business hours on workdays and nonworking days
Purpose of Totalization Agreements
To avoid dual taxation and dual coverage for social security
Qualified adoption assistance expenses definition
Reasonable and necessary expenses directly related to the adoption of an eligible child including: Adoption fees, attorney fees, court costs, travel expenses (including meals and lodging) while away from home, re-adoption expenses relating to the adoption of a foreign child.
Qualified employee discounts
Employer may offer discounted goods or services to its employees without adding the fair market value of the discounts to the employees’ income
Required holding period for ESPP
2 years from date of grant, 1 year after employee exercises options
Required holding period for Incentive Stock Options.
The later of 2 years from date of grant or 1 year from exercise date.
Safe-harbor value for determining the fair market value of a vehicle.
- The manufacturer’s invoice price (including options) plus 4% or
- The manufacturer’s suggested retail price minus 8% (including sales tax, titles and other expenses of purchase) or
- The retail value of the automovile reported by a nationally recognized pricing source if that retail value is reasonable for the automobile
Significance of overtime paid in excess of the FLSA standard
Can be excluded form the calculation of an employee’s regular rate of pay and may be credited toward statutory overtime payments.
Simple Cafeteria plan eligible employers
Employs an average of 100 or less employees during either of the 2 preceding years. Remain eligible in any subsequent year as long as don’t employ an average of 200 or more employees.
Simple Cafeteria plan employer contribution options.
- A uniform percentage of the employee’s compensation for the plan year, not less than 2%
- An amount which is at least 6% of the employee’s compensation for the plan year or twice the amount of the salary reductions contributions of each qualified employee, whichever is less.
Simple cafeteria plan participant requirements.
- must allow all employees with at least 1,00 hours of service in the preceding plan year to participate in the plan
- must allow all participants to elect any benefit offered under the plan
Taxability of Adoption Assistance
Social Security, Medicare and FUTA taxable, Nontaxable for FIT up to excludable limit
Taxability of employee business expense reimbursements
Nontaxable under an accountable plan
Taxable under a nonaccountable plan
Taxability of employer-provided cell phones
- Value of phone excludable as working condition fringe benefit
- personal use of cell phone excludable as de minimis fringe benefit
- Employer must provide phone for noncompensatory reasons
Taxability of Golden Parachute payments
Fully taxable
Taxability of Group-Term Life Insurance
- Coverage over $50K is taxable for FIT, social security & Medicare
- Exclude amount employee pays for coverage
Taxability of ISO’s if the employee sells after the required holding period.
- Qualifies for favorable tax treatment as a long-term capital gain
- Gain is not considered wages
- No W-2 reporting required
Taxability of ISOs if the employee sells before the required holding period.
- Report the spread between the exercise price and the fair market value of the stock at the time of exercise on Form W-2 box 1, federal taxable wages
- Federal income tax withholding is not required
- Exempt from social security, Medicare and FUTA
Taxability of travel advances
- Substantiated under an accountable plan are nontaxable
- Unsubstantiated or excess not returned under an accountable plan are taxable
- Paid under a nonaccountable plan are taxable when paid to the employee
To qualify as a commuter highway vehicle how many people must the vehicle seat
6 adults in addition to the driver
To qualify as a commuter highway vehicle, what percentage of its seats employees must occupy
50%
To Qualify as a commuter highway vehicle, what percentage of its use must be for commuting employee to work?
80%
True or False: Only cash tips are reported on Form 4070
False. Report must include cash tips and tips the employer-paid the employee from credit card customers.
True or False: The workweek must be a calendar week.
False. A workweek does not need to be a calendar week.
Two Categories of requirements employer must meet in order to establish a simple cafeteria plan.
Eligibility and participation requirements
Two other names for International social security agreements
Totalization Agreements, Binantional Social Security Agreements
Types of education excludable from income under an educational assistance plan
Undergraduate courses, Graduate courses
Types of education non excludable from income under an educational assistance plan
Sports, games and hobbies. Unless the education has a direct relationship to the business or is required to obtain a degree.
Types of pay excluded from the regular rate of pay.
- Discretionary bonuses
- Expense reimbursements
- Overtime in excess of the FLSA standard
- Commuting time
- Pay for unworked hours (i.e. vacation, sick, show-up pay, call-back pay)
Types of pay included in the regular rate of pay
- Regular pay (hourly wage, salary, piece rate etc.)
- Nondiscretionary bonuses
- Shift premiums
- Production bonuses
- Fair market value of noncash compensation
- Retroactive pay (pro-rate over the period covered and adjust overtime previously paid)
- On-call pay
- All payments not specifically excluded by law
Upon termination at what rate of pay should pay accrued compensatory time off?
The higher of the average regular rate of pay for the last 3 years of employment or the final rate of pay.
Values in the IRS Annual Lease Value Table are based on what lease term?
4 Year lease term
W-2 reporting requirements when NQSO are exercised
- Report as FIT wages in box 1
- Report social security wages, up to wage limit in box 3
- Report Medicare wages in box 5
- Report in Box 12, cod V
- Report any FIT, social security and Medicare taxes collected from the employee in the appropriate boxes
What form does an employee use the report tips received to the employer
Form 4070 employee’s report of tips to employer
What is the employee penalty for failing to report tips?
50% of the FICA taxes the employee owes on the tips
What is the excise tax rate on excess parachute payments?
20% nondeductible excise tax in addition to regular withholding
What is the formula to calculate the taxable value of a parking space an employer purchases for an employee?
Fair market monthly value of the parking space less monthly amount paid by the employee less qualified parking exclusion
What is the mileage requirement to use the Cents-per-mile rule?
Vehicle is driven primarily by employees and for at least 10,000 miles during the year. Pro-rate the mileage requirement if the employer owns the vehicle for only part of the year
What is the “purchase discount” on ESPP?
Difference between FMV of stock on date of exercise and exercise price.
What pay rate must overtime be paid at
1.5 times the regular rate of pay
What taxes are tips subject to withholding?
- FIT and FICA
- Subject to FUTA if employee reports in writing $20 or more tips in a month
When an employee may make changes to their cafeteria plan elections.
- Annually during open enrollment
- Due to a change in family status
- Upon termination
- Due to a significant change in the employee’s care coverage by a 3rd party provider
When an employer’s agent makes 3rd party sick pay payments, who is responsible for employment taxes?
The employer, unless the employer and agent enter into an agreement transferring responsibility for the taxes to the agent.
When an insurance company makes 3rd party sick pay payments for an employer who is responsible for employment taxes
The insurance company is responsible for withholding employee taxes and is liable for employer taxes
When can training or meeting time be excluded from hours worked.
Occurs outside normal working hours, attendance is voluntary, subject matter is not job-related and no other work is performed during the training/meeting
When do sick pay payments become exempt from Social Security, Medicare and FUTA tax
after the end of 6 calendar months after the calendar month that the employee last worked for the employer. The payments are always subject to FIT.
When is 3rd party sick pay not subject to social security, Medicare and FUTA?
- Payments after the end of 6 calendar months after the calendar month that the employee last worked
- Sick pay amounts paid after an employee’s death or disability retirement
- Sick pay amounts paid to the employee’s estate or survivor after the calendar year of death
- payments to an employee who is entitled to disability insurance payments
- The portion of the payments attributable to an employee’s after-tax contribution to the plan
When must On-call time be paid?
If the employee must remain on the company premises or nearby and is constrained from conducting personal business, the time is compensable
When should you report ESPP purchase discount on Form W-2?
Upon the sale of the stock or any disqualifying or qualifying disposition
Where can you find the value of a vehicle for purposing of calculating the taxable income to an employee?
IRS Publication 15-B, Annual Lease Value Table.
Where do you find the monthly cost figures for GTL?
IRS Publication 15-B
Where do you report dependent care on Form W-2?
Box 10
Working condition fringes
Employer may offer certain work-related property or services to employees without including their fair market value in the employees’ income.
