Employee/Fringe Benefits Excluded from Gross Income

Question 1

Nondiscrimination requirement

Answer 1

If a classification of fringe benefits is discriminatory = highly compensated employees must include the fringe benefit as gross income BUT the fringe benefit will be tax fee to regular employees

Question 2

Employee Defined

Answer 2

i. Individual employed (currently)
ii. Retired, disabled employee
iii. Widow or widower of retired or disabled employee
iv. Spouse or dependent child
v. Parent of employee

Question 3

No-Additional-Cost Services

Answer 3

§132(a)(1)

A no-additional-cost services is one:

1. Offered to customers in regular course of business
2. There’s no substantial additional cost to employer in proving fringe to employee

The service must be provided in the same line of business the employee is in
1. Example: Delta Airline provides seats to employees

Question 4

Qualified Employee Discount

Answer 4

§132(a)(2)

Employee discounts on services and property are excluded from gross income

Applies to:

1. Purchases of property
2. Purchases of services

Excludes real property and personal property held for investment

Question 5

Limits on discount for services under Qualified Employee Discount Fringe Benefit

Answer 5

the discount (what’s being excluded from gross income) may not exceed 20% of the price customers pay

Question 6

How is a fringe benefit treated?

Answer 6

Excludable from gross income

Question 7

Limits on discount for property under Qualified Employee Discount Fringe Benefit

Answer 7

discount must not exceed the “gross profit percentage” (GPP is expressed as a fraction)

Numerator = gross sales price (minus) cost of property
Denominator = gross sales price

Example:
i. Gross sales price $800K - $200K cost of property/$200K cost of property = 25% gross profit percentage SO employee’s discounted price can’t more than 25% off the original price → if it is, must report the amount that goes over (i.e. if 10% is over GPP, then 10% of original price must be included in gross income

Question 8

Working Condition Fringe

Answer 8

§132(a)(3)

This is a benefit to the employee, that if the employee had to pay these herself, she would have got a tax deduction for them because they were related to employee’s employment

Question 9

De Minimis Fringe

Answer 9

§132(a)(4)

Goods or services that are so small, it would be impracticable to account for them are excluded from gross income

Examples:

1. Coffee provided by employer
2. Use of copy machine
3. Use of secretary service
4. Meal money
5. Overtime

Question 10

Cash payment a de minimis fringe?

Answer 10

A cash payment cannot be de minimis fringe benefit regardless of amount

Question 11

Qualified Transportation Fringe

Answer 11

§132(a)(5)

Forms:

1. Transit passes for mass transit
2. Qualified parking
3. Qualified bicycle commuting
4. Transportation in a commuter highway vehicle from employees home to place of employment

Question 12

Limits of Qualified Transportation Fringe

Answer 12

1. Commuter highway & transit passes = $100/month
2. Qualified parking = $175/month
3. Qualified Bicyble = $20/month X # of months

Question 13

Cash option of Qualified Transportation Fringe

Answer 13

If the benefit is offered to employee is cash option, the amount must be included in gross income

Question 14

Qualified Moving Expense Reimbursement

Answer 14

§132(a)(6)

i. Cost to move is excluded from gross income
ii. The move has to be for the convenience of the employer

Question 15

Athletic Facilities

Answer 15

§132(j)(4)

Value of the use of any on-premises athletic facility is excluded from gross income

Requirements

1. Facility must be on employer’s premises
2. Operated by the employer
3. Substantially used by employees, their spouses, and their dependent children

Question 16

Group Term Life Insurance

Answer 16

§79

Allows for max for $50K in coverage to be paid by employer and tax free to employee

Question 17

Dependent Care Assistance

Answer 17

§129

Up to max of $5K if you’re married filing joint, or $3K if you’re married filing single

§112 excludes compensation received by military personnel for service in combat zones

Question 18

Adoption Expenses

Answer 18

§137

Excludes employer payments of qualified adoption assistance program

Question 19

Cafeteria Plans

Answer 19

§125

Employees choose benefits from a group of available fringe benefits

Question 20

Meals on Business Premises

Answer 20

§119

An employee may exclude from gross income the value of meals and lodgings provided by employer

Question 21

What are the requirements for Meals on Business Premises fringe?

Answer 21

a. Convenience of the employer = meals or lodging must be for the convenience of employer
b. Business premises = meals or lodging are on the business premises of employer
c. Condition of employment = (only for lodging) the employee must be required to accept the lodging as a condition of employment