There are three types of fringe benefits from a Louisville tax perspective. Fringe benefits may be:
- Paid by you
- Specifically excluded by law
If you pay for the benefits or if they are specifically excluded they are not considered income to you. Taxable fringe benefits will be included on your W-2 Box 1 with a notation in Box 14. You may receive a separate W-2 that includes only your taxable fringe benefits.
The following are some common employer-provided benefits. Most of these are specifically excluded by law.
Accident or Health Plans: The value of accident or health plan coverage provided by your employer is usually not included in your income. However benefits may be taxable to you.
If your employer does not pay the entire cost of your health insurance you may be able to enter into a “salary reduction agreement” with you employer. Under these agreements your employer reduces your salary or wages by the amount of your cost of the health insurance and pays the full amount. This has the effect of making your insurance payment amount free from income taxes. However you may not take an itemized deduction for these contributions.
Long-term care coverage contributions by your employer are not included in your income. However contributions made under a flexible spending plan must be included in income.
Archer MSA Contributions by your employer are not included in income. This amount is reported in Box 12 code R of your W-2 and should be reported by you on Form 8853.
Health Flexible Spending Arrangement (Health FSA) contributions qualifying as an accident or health plan are not included in your income to the extent of your salary reduction. Reimbursements under these plans are not income.
Health Reimbursement Arrangements (HRA) that qualify as an accident or health plan are not considered income. Reimbursements under these plans are not income.
Health Savings Accounts (HSA) for eligible individuals may be funded by your employer yourself or other persons. Contributions not made by your employer are deductible on your returnunless they are pre-tax contributions. Employer contributions are not income to you. Distributions to pay for qualified medical expenses are not income. Distributions not used for qualified medical expenses are income to you.
Adoption Assistance: You may be able to exclude from your income amounts paid or expenses incurred by your employer for qualified adoption expenses if you attempt to adopt an eligible child. These are reported on your W-2 Box 12 code T. However they are included in boxes 3 and 5 as taxable for social security and Medicare.
DeMinimis Benefits: These are benefits having a minimal value. If the cost is so small it would be unreasonable for the employer to account for it the value is not included in your income. Examples would include use of the copy machine coffee discounts at company cafeterias and the cost of company picnics.
Holiday Gifts: If your employer gives you a ham turkey or other item of nominal value at Christmas or other holidays it is not included in your income. However cash gift cards or similar items are included in your income regardless of the amount.
No Additional Cost Benefits: Benefits that the employer provides to you at no additional cost to the employer are not considered taxable income. Examples include unused airline seats unused hotel rooms computer or telephone use. This benefit is available to employees spouses dependents and retirees.
Qualified Employee Discounts: These are not taxable if the discount for services does not exceed 20%. Discounts for merchandise are limited to the employer’s gross profit percentage. No discounts are allowed for real estate stock or other investment property. This is available to employees spouses dependents and retirees.
Working Condition Benefits: These include items such as professional dues paid by the employer or subscriptions to professional publications and are not included in income.
Qualified Transportation Fringe Benefits: Your employer may provide you up to $120 per month in transit passes and tokens or up to $230 per month for parking. These amounts are excluded from your income. Also transportation in a commuter highway vehicle provided by your employer between your home and place of work is not taxable income to you. This benefit is limited to $120 per month.
A commuter highway vehicle is defined as one that is used at lest 80% for transporting employees between their homes and work places or trips during which at least half of the vehicle’s adult seating is occupied by employees. The vehicle must seat at least 6 adults plus the driver.
Recreation and Athletic Facilities: The use of employer-owned athletic or recreation facilities is not taxable income. This benefit is available for employees spouses dependents and retirees.
Educational Assistance: You can exclude from your income up to $5250 of qualified employer-provided educational assistance.
Employer-Provided Vehicles: If your employer provides you a vehicle your personal use of the vehicle is a taxable noncash fringe benefit. Your employer must determine the actual value of the benefit and include that amount on your W-2.
Group Term Life Insurance: Generally your employer may provide up to $50000 in group term life insurance to you as a tax-free fringe benefit. However the cost of any coverage above that amount is taxable income to you. This amount will be reflected on your W-2 Box 12 code Cand is included in Box 1. Accidental death benefits are not considered group term life insurance for this purpose.
Retirement Planning Services: If your employer has a qualified retirement plan qualified retirement planning services provided by the employer to you and your spouse are not included in your income. This does not include the value of tax preparation accounting legal or brokerage services provided by your employer. These items are taxable income to you.
Retirement Plan Contributions: Your employer’s contributions a qualified retirement plan for you are not included in your income. Generally speaking contributions into a non-qualified plan are taxable income.
You may make tax-free elective deferrals into a qualified retirement plan provided by your employer. In these instances you choose to make a contribution to the retirement plan. However an elective deferral treats these amounts as being paid by your employer and are not taxable to you. You cannot have more than $16500 per year in elective deferrals. However if you have reached your 50th birthday you may make additional elective deferrals often referred to as “catch up contributions.”
Stock Options: These are classified as non-statutory or statutory options. If it is a non-statutory option you will have income when you receive the option when you use the option or when you sell or otherwise dispose of the option. With a statutory option you do not recognize any income until you sell or exchange your stock from the option. Your employer can tell you which type of options you have.
Meals and Lodging: Meals provided by an employer may be excluded from an employee’s income if the meals are furnished on the employer’s premises and are for the convenience of the employer.
Lodging provided by an employer may be excluded from an employee’s income if it is furnished on the employer’s premises is for the convenience of the employer and is required that the employee accept the lodging as a condition of employment.
Dependent Care Benefits: These benefits are employee-financed programs that provide care for an employee’s children or other dependents. An employee may exclude up to $5000 of assistance each year from taxation. The care must be care that would qualify for the dependent care credit if the employee had paid the amounts.
Employee Death Benefits: These are payments made to the family or friends of a relative who dies. They may or may not be taxable depending on the “facts and circumstances.”
If the payments were for past services such as bonuses accrued wages or unused vacation pay they are taxable income to the family. The important issue here is if the employee would have received these payments had he lived.
Other amounts may be regarded as a gift by the employer to the deceased employee’s family. An important factor to consider here is the intention of the employer. If considered a gift the payments are not taxable income to the employee’s family.