Section 3 Taxable & non taxable compensation

Question 1

What is Gross Income Per IRC?

Answer 1

Gross income as wages & Fringe benefits. Gross income includes: “compensation for services, including fees, commissions, fringe benefits, and similar items.

Question 2

What is Fair Market Value?

Answer 2

The amount of the non-cash fringe benefit is its fair market valude, or the cost for an indvidual to purchase it on the open market.

IFBA = FMV - (EPA + AEL)
IFBA = Includable Fringe Benefit Amount (taxable amount)
FMV= Fair market Value
EPA = Employee Paid Amount
AEL = Amount Excluded by Law

Question 3

IRC # 132 list?

Answer 3

List nontaxable Fringe benefits. What benefits are exempt from inclusions in income and taxation

• No additional cost services
• Qualified employee discounts
• Working conditions fringes
• De minimus Fringes
• Qualified transportation benefit (for 2013)
• On-premises athletic facilities
• Qualified retirement planning services
• Qualified moving expenses reimbursements

Question 4

What are Qualifed transportation benefits for 2013 and limits?

Answer 4

• Commuter vehicle up to $245 per month
• Transit passes/vouchers/tokens upt to $245 per month
• Parking up to $245 per month
• Bicycle commuting reimbursement up to $20 per month

Question 5

What is De Minimis fringes?

Answer 5

An employer may provide certain property or services of small value to employees without including the value in the employee’s income.

Amount is non-taxable b/c its a very small and cannot assign a dollar amount so cannot tax. Example is the supplies provided in the supply room for employees.

Question 6

Vehicles used for business taxable?

Answer 6

Vehicle used for business- value of use is excluded as working condition fringe benefit.

All other uses- taxable income.

Exceptions to use personal use rule:

• De minimus fringe benefit
• Qualified non-personal use vehicle (examples; delivery vehicles, animal control vehicle, moving van, public safety car.
• Automobile salespeople

Question 7

What is valuation mehtod?

Answer 7

Employers can determine the fair market value of taxable personal use of a company provided vehicle by using either a general valuation method or special valuation method:

General valuation method -the fair market value of a company provided vehicle is the price an individual would pay to lease the asme or a comparable vehicle in an arm’s lenght transaction in the same geographical area for the same lenght of time.

Special valuation methods - there are 3 types to determine the fair market value of the personal use of a company provided vehicle: Commuting Valuation method, Annual lease valuation method, and vehicle cents per miel method

Question 8

What is the commuting valuation method?

Answer 8

This method allows an employer to value an employee’s personal commuting use of an employer-provided vehicle at $1.50 per one way commute and $3.00 per round trip.

Question 9

What is Annual lease valuation method?

Answer 9

Under this method, the fair market value of an employee’s personal use of company provided vehicle is determined by multiplying the annual lease value of the car by the percentage of personal miles driven.

Question 10

What is vehcle cents-per- mile method?

Answer 10

Under this method, the fair market valude of an employee’s personal use of company provided vehicle is determined by multiplying the IRS business standard mileage rate by the number of personal miles driven. The business standard mileage fro 2013 is $0.565 .

If employee pays for gas, the taxable amout is $0.51 per mile.

Question 11

Is air travel a taxable/non taxable fringe benefit?

Answer 11

Yes depending on usage, personal use is taxable:

Personal use of employer provided aircraft

• general valuation rule
• Non commercial flight valuation rule
• seating capacity exception

Free or discounted commercial flights

Only need to know concept, not detials

Question 12

Is Group-term life insurance taxable? Please explain

Answer 12

Group term life insurance. Value of coverage upt to $50,000.00 is non taxable.

Exceptions, over $50k nontaxable if:

• the beneficiary is the employer or
• the beneficiary is a charitable organization
• the employee terminates employment during the year due to a permanent disablilty

Whole life insurance - employer paid portion is taxable income

Question 13

Where is GTL reported on W2?

Answer 13

Box 12, Code C for GTL

Codes M and N for retirees’ or other former employees’ GTL

Question 14

How is GTL calculated?

Answer 14

Total life insurance - $50,000.00/$1,000.00 = ___ * FMV % on chart based on age of ee.

Question 15

What expenses are deductible and non deductible for moving expenses?

Answer 15

Qualified moving expense reimbursements = non taxable fringe benefit

Deductible (non taxable) moving expenses:

• Transportation of household goods - and storage for up to 30 days
• Expenses for traveling from old home to new home (24 cents per mile if using a personal vehicle)
• Members of the household are included

*Report on W2, Box 12, with code P

Non deductible (taxable) moving expenses:
Meals
Pre-move house hunting
temporary living expenses
real estate expenses
*Report W2 as taxable wages on boxes 1 , 3 , and 5

Question 16

What job-related eduction expences that are excluded from income?

Answer 16

• The course must not be necesarryo to meet minimum requirements of the job
• The course are not to be taken to qualify employee for a promotion or transfer to a different type of work
• The eduction must be related to employee’s current job- to maintian or improve the knowledge and skills required for the job.

Question 17

What is the $ amount for non job-related education expenses? that are taxable and non taxable?

Answer 17

Up to $5,250 = non taxable

Over $5,250 = taxable

Question 18

Is Business Travel Expense Reimbursement taxable or non taxable? What are the requirements?

Answer 18

Non taxable if:

• Travel must be “away from home” (must be away overnight) and temporary” (for no more than one year)
• Reimbursements for daily transportation expenses are not included in income if “temporary” assignment
• Mileage is 56.5 center per mile for business use of a personal vehicle (2013)

Question 19

What are the 2 travel expense reimbursment plans?

Answer 19

• Accountable plan (the amount is excluded from income and not subject to taxation)
• Non accountable plan (or if amount exceeds substantiated amount: the reimbursement or the excess is included in income and is a subject to taxation

Question 20

What are the conditions for the Accountable plan?

Answer 20

Business connection
Substntiation (proivde reciepts)

Returning excess amounts
2 safe harbor methods:
Fixed date method
Periodic Statment method

Reimbursments or advance for business meals and entertainment are not included in income. (part of working condition fringe benefits)

Question 21

What are the conditions for Non-Accountable plan

Answer 21

All payments are included in income and subject to taxation

Question 22

What are the taxation and reporting requirements for Non-accountable plans and for accountable plans?

Answer 22

Non-accountable plans
- Amounts that do not meet requirements or excess of an advance is not returned - include in the wages and tax

Accountable plans
-If not substantiated on time, treate same as non-accountable.
If amount employee received exceeds amount substantiated include in wages and tax.

*The amounts that were substantiated are reported on W-2 in Box 12 code L

Question 23

What conditions make Spousal Travel non taxable?

Answer 23

• The spouse, dependent, or other person is an employee
• The travel is for bona fide business purpose
• The expenses would otherwise be deductible as business expense

could be a working condition fringe benefit

Question 24

Are Employer- provided meal non taxable?

Answer 24

Value of meals furnished in kind by employer to an employee is excluded from income and is not subject to taxation if:

the meals are on the employer’s business premises

and

they are for the convience of the employer

Question 25

What conditions make Employer provided lodging excluded from income?

Answer 25

If:

• the lodging is furnished on employer’s business premises
• It is for the employer’s convience
• the employee is required to accept the lodging as condition of employment
• Cash allowances not excluded
• contract or state law not determinative

Question 26

Adoption Assistance what is the dollar limitation?

Answer 26

$12,970.00 non taxable (2013)

Question 27

What is the withholding reporting W2 obligation for Adoption assistance?

Answer 27

Report on W2, Box 12, Code T

example T is for Toddler**

Question 28

What is “Employer -Paid Taxes” Grossing up?

Answer 28

If an employer wants to provide a bonus to an employee with a certain net amount (such as $2,000.) the employer can calculate the gross amount that would have to be paid to result ini the employee receiving the specified net amount (in this case $3,259.98) gross.

The employer would essentially be paying the taxes for the employer

Question 29

What is the Gross up formula?

Answer 29

Add all the taxes (25%FIT+6%SIT (different per state)+6.2%SS+1.45%MED

Gross up rate= 100% -total tax = ____

Gross earnings =bounus amount / gross up rate

Question 30

What is the social secuirty percentage tax rate and the max amount that can be taken in 2013?

Answer 30

`6.2%

2013 SS wage base is $113,700.00 is taxable

Question 31

What is the federal flat tax rate for gross ups an supplemental wages?

Answer 31

25% if less than $1,000,000.00

39.6% if greater than $1,000,000.00

Question 32

What is the taxable rate for medicare and limit?

Answer 32

1.45%

2013 medicare wage base is $200,000.00 is taxable

Question 33

*Are loans to employees taxable?

Answer 33

Yes if :

• combined loan amounts over $10,000
• interest rates below the federal interest rate

The difference between the interest rate the employer is charging and the federal interest rate is subject to SOCIAL SECURITY, MEDICARE and FUTA taxes.

Question 34

What are non quialifed stock options?

Answer 34

Employee has the opportunity to purchase the employer corporation stock at a fixed price for certian period of time, without the conditions placed on incentive stock options.

When the option is excercised, the employee receives income equal to the excess of the value of the stock over the price paid by the employee.

The income is TAXABLE and must be reported on the employee’s W2 in Boxes, 1, 3, 5 as well as Box 12 with code

Question 35

What are the tax treatment and reporting obligations for wages paid after death?

Answer 35

The wages paid after an employee death depends on when the wages are paid in relation to employees death.

-Employee dies before cashing paycheck
If employee dies after receiving a paycheck but before cashing, the employer should reissue the check to the employees personal reprsentative for the same net amount, since income and eployment taxes were properly withheld. The wges and amounts withheld must be reported on teh deceased employee’s form W2

-Wages paid after employee dies and in the same year.
Wages paid to estate or legal representative are not subject to Fed only SS, Med, FUTA. The amounts must be reported on W2 in boxes 3-6 and 1099 misc.

-Wages paid after the year of deah
Not subject to any taxes but must be reported on W2 and 1099 misc.