Retirement Planning - Employee Fringe Benefits Flashcards
What is a fringe benefit?
- all fringe benefits provided to an employee are taxable as wages UNLESS a specific provision of the IRC excludes the benefit from taxation OR the employee pays fair value for the fringe benefit.
- value of a fringe benefit provided to an employee is deductible as compensation expense by the employer unless the fringe benefit is excludable from the employees taxable income.
How is discrimination handled?
- if fringe benefit is discriminatory , income exclusion may be lost and the benefit included in the employees income.
Important numbers
Summary of available fringe benefits
What meals are not considered for the convenience of the employer?
- Meal provided to promote the morale or goodwill fo the employee or attract prospective employees does not qualify for the exclusion.
- if the employer charges the employee for the meal. the meal will not be regarded as furnished for the convienience of the employer if: the employee has a choice of accepting the meal and paying for it, or of not paying for it and providing his own meals.
What are the rules surrounding lodging?
Excluded from employees income if:
- lodging is furnished on the employers business premises.
- lodging is furnished for the convenience for the employer.
- the employee is required to accept the lodging as a condition of employment.
if doesnt meet one of these requirements, lodging must be included in gross income.
What are the rules surrounding Dependent Care Assistance?
services must be provided under the following conditions:
- dependent care under age of 13
- dependent children who are physically or mentally incapable of caring for themselves
- employees spouse if the spouse is physically or mentally incapable of caring for herself.
employee may exclude from income lesser of:
- $5,000 annually in benefits received
- the earned income of the employee and her spouse.
NON DISCRIMINATION RULES APPLY
what are “no additional cost services”?
- applies to any service provided by an employer to an employee that does not cause the employer to incur any substantial additional coast or lose revenue.
- Examples: Free airline, bus, or train tickets, and hotel accommodations or telephone services either free or at reduced prices to employees working in those lines of businesses.
NON DISCRIMNATION RULES
What are the rules surrounding Dependent Care Assistance?
services must be provided under the following conditions:
- dependent care under age of 13
- dependent children who are physically or mentally incapable of caring for themselves
- employees spouse if the spouse is physically or mentally incapable of caring for herself.
employee may exclude from income lesser of:
- $5,000 annually in benefits received
- the earned income of the employee and her spouse.
*must be non-discriminatory.
what are “no additional cost services”?
- applies to any service provided by an employer to an employee that does not cause the employer to incur any substantial additional coast or lose revenue.
- Examples: Free airline, bus, or train tickets, and hotel accommodations or telephone services either free or at reduced prices to employees working in those lines of businesses.
What is the limit of qualified employee discounts?
-Lesser of:
20% of the price at which the SERVICE is offered to non-employee customers
for MERCHANDISE or other property, the employers gross profit percentage multiplied by the price the employer charges non-employee customers for the property.
NON DISCRIMINATION RULES APPLY
What are rules surrounding working condition fringe benefits?
-property or service provided to an employee that enables the employee to perform his work and, if paid for by the employee, would be deductible as a trade or business expense.
Company cars are common - must be used for business use only and not personal use.
What are some items not considered “De Minimis” Fringe benefits? - INCLUDED in income
- Season tickets for sporting events or theatrical events
- commuting use of an employer provided auto more than one day a month
- use of employer -owned or leased facilities (such as an apartment, hunting lodge, boat, etc.) for a weekend unless required for work.
What is the limit for adoption assistance in 2022?
$14,890
Phased out:
$223,410-$263,410
-child must be under the age of 18.
What are the rules surrounding Plans and Awards?
Excluded from employee income as long as it does not exceed:
$400 - Non-Qualified plan awards
$1,600 - Qualified Plan Awards
Qualified Plan Award = employee achievement award bestowed as part of an established written plan of the taxpayer that does not discriminate in favor of highly compensated employees.
What is COBRA?
- Employers that have a group health plan and more than 20 employees are required to continue to provide coverage under the occurrence of a qualifying event. (SEE IMAGE FOR EVENTS)
- During Cobra Period, premium cannot exceed 102% of the cost of the existing plan
How are Employer provided group term life insurance policies treated?
**SEE EXAMPLE, MOST IMPORTANT, KNOW HOW TO DO THIS.
- Premiums paid by the employer on the first $50,000 of death benefit are deductible by the employer and are excludable from an employees gross income.
- to be group term life insurance, it must be provided to at least 10 full time employees.
If 10 employee rule not met:
employer provides coverage to all eligible full time employees.
non discriminatory
evidence of insurability must be proved with a medical questionnaire, that does not require a physician.
- must provide a general death benefit to a group of employees, and the coverage must provide an amount of insurance to each employee based on a formula that prevents individual selection. (non discriminatory)
- for deduction and exclusion, plan must cover either:
70% of all eligible employees, or
85% of non-key employees.
What is a cafeteria plan?
- Plan, under which the employee has the choice to receive cash or tax free fringe benefits.
- if employee chooses fringe benefit, it is a deduction to the employer.
- if plan provides a benefit that is not allowed, the benefit will be included in the employees gross income.
- discrimination in favor of highly compensated individuals or providing more than 25% of benefit to key employees, will result in the benefit being included in those employees income.
**CHART SHOWS WHAT BENEFITS ARE ALLOWED AS TAX EXEMPT FRINGE BENEFIT.
What is a Flexible Spending Account (FSA)?
Cafeteria plan that is funded by player deferrals instead of employer contributions.
Use it or lost it accounts, special rule - $570 can be carried over from 2021 to 2022
- annual limit is $2,850 for 2022
- employee contributions are not subject to income tax or payroll tax and are not taxed upon withdrawal!
Rules surrounding HSAs
- To establish employee needs to have a high deductible health plan.
- earnings are not taxable and distributions for qualified medical expenses are tax free.
- distributions used not for qualified medical expenses are taxable as ordinary income
- distributions taken before the age 65 are subject to additional 20% penalty.
What are split dollar life insurance policies?
-arrangement where an employee and employer share the premium costs and cash value of a life insurance policy covering the life of an employee.
Basically the employer helps the employee pay for life insurance.
- purpose of the split is to reimburse the employer share of the premium cost of the policy. They are reimbursed with the death benefit in the amount of the premiums paid or, if the policy is surrendered, the amount of the premiums paid or entire cash value.
- different ways to structure the cash value or death benefit of the split:
amount of premiums paid
cash value; or
greater of cash value or premiums paid,
- Two methods of ownership:
Endorsement method - the employer owns the policy and is primarily responsible for making the premium payments. Employee elects a beneficiary but the employer is paid a portion of the death benefit equal to the death benefit split that is in the agreement.
Collateral Assignment - the employee owns the policy and is primarily responsible for making the premium payments. employer makes interest-free loans to the employee to the employee in the amount of the premium the employer is responsible for.
How are Split Life Dollar Life Insurance Policies taxed?
- for all methods the employer does not receive a deduction for premiums paid and the death proceeds are tax free.
- endorsement method and non-equity -type collateral assignment plans require that the employee recognize income in the amount of pure death benefit under table 2001 less any amount amount contributed to the plan by the employee.
- for equity type collateral assignment plans amounts loaned to the employee are deemed demand loans if there is no stated interest rate. The tax treatment is additional compensation income to the employee in the amount of the assumed interest payable based on the Applicable federal rate (AFR). The employer gets a deduction, for the assumed income paid and the employee must report the income on his/her tax return.
