It's hard to believe we're halfway through 2015 - almost time to think about purchasing W-2s and 1094-C and 1095-C papers. Almost, but not quite.
Now is the perfect time to look at the fringe benefits you provide to your employees. This specific taxation is a main focus of the IRS right now, and they recently conducted several free webinars to review the taxability of fringe benefits.
In general, anything you give to your employees is taxable unless the IRS specifically exempts it. Cash and cash equivalents are always taxable, such as that $50 gift card you gave to the employee of the month. These are taxable at the time that they are given to the employees, in the pay period they are received.
The good news is that some items are exempt, such as (controversially) cell phones. If used primarily for business, cell phones are no longer considered listed property and can be excluded from income. Additionally most health care plans are exempt and, if Section 125 Cafeteria Plan applicable, FICA exempt.
Company cars have a couple of calculation methods: standard mileage and the lease valuation rule. Refer to IRS publication 15-B for more information on valuation methods and inputted income requirements.
Moving expenses, the amounts paid under an accountable plan (IRS Publication 521), are also exempt. An example is the money paid to the third party moving company on a qualified move, including storage up to 30 days. An item that is not exempt is house hunting, such as travel to the new location prior to moving-again, this is taxable when given.
You may notice a reference to de minimis items in the IRS code. These items can be nontaxable but, by definition, are of little importance and may be difficult to adequately track. Be careful-cash and cash equivalents are never de minimis. Furthermore, the IRS does not assign a dollar amount to de minimis items, so general practice and recommendation is to consider most items not specifically exempted by the IRS as taxable.
Meals and Lodging provided by an employer are generally excluded from gross income under Section 119. For an employee to exclude the value of meals received from an employer from gross income under the general exclusion in Sec. 119(a), the employer must furnish the meals on the employer's business premises. The "employer's business premises" generally means the employee's place of employment. The business premises include the place where the employee performs significant duties or where the employer conducts a significant portion of its business. The meals must also be for the convenience of the employer, not the convenience of the employee. Regs. Sec. 1.119-1(a)(2) treats meals provided before or after work as not provided for a substantial noncompensatory reason. Thus, the employee must include the value of those meals in gross income. Meals provided to restaurant employees are a common exception. A restaurant employee may exclude from gross income the value of free or discounted meals consumed immediately before work, during work, or immediately after work.
When an employer provides housing or lodging for an employee, the employee may be able to exclude the value of the lodging from gross income. The lodging must meet three tests under Regs. Sec. 1.119-1(b): (1) The lodging must be on the employer's business premises; (2) the employer must provide the lodging for the employer's convenience rather than for the employee's convenience; and (3) the employer must require the employee to accept the lodging as a condition of employment. Thus, the employee must need to live in the lodging to be able to perform the duties of the employment. The requirement for the lodging to be on the business premises of the employer generally means at the place of employment. This could include the employer's home, for a domestic servant, a client site, or property leased by the employer for the business purpose. It could also mean other property owned by the employer where the employee performs a significant portion of his or her duties.
Again, now is an excellent time to review your procedures and controls to ensure proper timing and taxation of fringe benefits. The IRS looks closely at these items, so it's always good to be prepared.
Credit: CPA Practice Advisor