Tax Exempt Government Federal State Local Governments Entities

Tax Exempt & Government Federal, State & Local Governments Entities Taxability of Fringe Benefits Wally Reimold (615) 250 -6051 Wallace. L. Reimold@irs. gov October 13, 2017

WHAT IS A FRINGE BENEFIT? • Cash, property, services in addition to regular wages 2

ARE FRINGE BENEFITS TAXABLE? • Taxable to employee unless specifically excluded by IRC • Taxable means subject to withholding and reported on W-2 in year benefit provided 3

Valuing Non-Cash Fringe Benefits FMV: What would it cost employee to buy benefit from an unrelated third party? 4

Fringe Benefit Code Sections • Examples: • IRC 119 – Meals and Lodging • IRC 127 – Educational Assistance • IRC 132 – General Fringe Benefit Section 5

WORKING CONDITION FRINGE BENEFIT • Definition: • Property or service that employee would have been entitled to deduct on 1040 if employer hadn’t provided it 6

WORKING CONDITION FRINGE BENEFIT • General Rules: • Must relate to employer’s business • Employee could have deducted expense on 1040 • Employee must substantiate business use 7

IRC 132(e) – DE MINIMIS FRINGE BENEFIT • General Rules: • Property or service that is small in value, and • Provided to employee infrequently, not regularly 8

MOVING EXPENSES 9

MOVING EXPENSES • IRC Section 132(g): • Allows employer to reimburse employee • IRC Section 217: • Allows individual to deduct certain expenses 10

MOVING EXPENSES • Not taxable to EE if: • Paid under an Accountable Plan • Specific tests of IRC 217 met 11

IRC 217 TESTS • Must be an employee • Employee must incur the expenses • Expenses closely related to starting work at new job location • Expenses allowed under section 217 • Must met time and distance tests 12

MOVING EXPENSES • Non-Taxable Costs of Traveling: • Moving other members of household • Airfare, Car • Lodging while travelling • Parking fees, tolls 13

MOVING EXPENSES • Non-Taxable Costs of Moving Household Goods/Personal Effects: • Packing, Crating, Transporting • Shipping Car(s) • Shipping Pet(s) • Storage & Insurance (30 consecutive days) 14

MOVING EXPENSES • Non-Deductible/Taxable Costs of Moving Household Goods/Personal Effects: • Pre-Move House Hunting Expenses • Return Trips to Former Residence • Storage Charges Except Those Incurred in Transit • Loss on the Sale of Home 15

MOVING EXPENSES • Reimbursements are not included in income if: • Expenses qualify under IRC 217, and • Are reimbursed in the same calendar year they are deducted 16

MEAL ALLOWANCES & REIMBURSEMENTS 17

MEAL ALLOWANCES & REIMBURSEMENTS • Meals while traveling • Meals while not traveling • Meals with meetings or entertainment • De minimis meal allowances 18

MEAL ALLOWANCES & REIMBURSEMENTS • Meals while traveling • Tax-Free Requirements: ØMust be away from tax home overnight, or long enough to require substantial sleep or rest ØNo set numbers hours away or distance ØSubstantiation required 19

MEAL ALLOWANCES & REIMBURSEMENTS • Meals not away from home: • Meals with meetings • Meals with entertainment • De minimis meals 20

MEAL ALLOWANCES & REIMBURSEMENTS • Meals with meetings or entertainment: • Tax-Free if meal meets test: Ø“Directly Related” test, or Ø“Associated With” test 21

MEAL ALLOWANCES & REIMBURSEMENTS • “Directly Related Meals – Tax-Free • Meals as part of business meetings • Meals at service club or professional meetings • Example- Rotary, Finance Officers Association, CPA 22

MEAL ALLOWANCES & REIMBURSEMENTS • “Associated With” Test • Meals with clear business purpose • Substantial business discussion/negotiations directly preceding or following a meal 23

MEAL ALLOWANCES & REIMBURSEMENTS • “Associated With” Meals – Tax-Free • Meals at conventions • Meals at conferences 24

MEAL ALLOWANCES & REIMBURSEMENTS • De Minimis Meals – Tax-Free if: • Meal is small in value and occasional • Not provided routinely or often • Provided so employee can work overtime • Enables employee to work overtime 25

MEAL ALLOWANCES & REIMBURSEMENTS • De Minimis Meal • Generally meal must be consumed during overtime period • Meal allowances based on number of hours worked does not qualify as de minimis 26

MEAL ALLOWANCES & REIMBURSEMENTS • Note: Meals consumed en-route to daily business events are not tax deductible • ie Breakfast and dinner while traveling to and from a daily convention or conference would not be deductible 27

QUALIFIED EMPLOYEE DISCOUNTS 28

QUALIFIED EMPLOYEE DISCOUNTS Are Non-Taxable If: • The discount is not on real estate or investment property; • The item discounted is from the same line of business in which the employee works; • The discount does not exceed the gross profit margin on property or 20% on services; and • The benefit is offered on a nondiscriminatory basis 29

QUESTIONS? 30

Department of the Treasury Internal Revenue Service www. irs. gov 31