DP Tool Club 12/CD_ASCQ_12_0294.iso/vrac/sba93_4.zip/F136.SBE

Text File | 1993-09-14 | 6KB | 120 lines

@109 CHAP 8

        ┌───────────────────────────────────────────────┐
        │         MISCELLANEOUS NON-RETIREMENT          │
        │             FRINGE BENEFIT PLANS              │
        └───────────────────────────────────────────────┘

The federal tax laws are replete with a whole host of tax-
favored employee fringe benefits, which are characterized
as being deductible to the employer and non-taxable to the
employee.  In addition to the fairly "standard" health
care, disability and group-term life insurance plans, some
of the other most common and important non-taxable fringes
are discussed below.

SECTION 132 EXCLUDIBLE FRINGE BENEFITS.  The following
fringe benefits are excludible both from income AND em-
ployment taxes (FUTA and FICA) for employer and employee:

  . No-additional-cost-services provided to an employee.
    These consist of benefits such as free airline, rail
    or bus transportation, provided by companies in those
    industries; rooms for hotel employees; or free phone
    service for telephone company employees.

  . Employee discounts.  Service companies can provide
    their services to employees at up to a 20% discount.
    For companies selling goods, the discount may not
    exceed the employer's gross profit percentage
    multiplied by the usual selling price of the item
    to customers.

  . Working condition fringes.  These are tax-free, up
    to the amounts that would have been deductible if paid
    by the employee, for such items as a company car or
    plane used for business purposes; subscriptions to
    trade or professional publications; on-the-job
    training; business travel; parking; and others.
    (However, under 1992 law changes, excludable parking
    benefits have been limited to $155 per month -- any
    excess amounts are taxable to the employee.)

  . "De Minimis fringes."  These are items that are
    considered to minimal to justify the administrative
    costs of accounting for them, such as using the
    the company's copier machine; having a secretary
    type a personal letter, and the like.

  . On-premises athletic facilities.  Providing and
    operating such facilities as gyms, pools, tennis or
    golf courses on the business premises, for employees,
    their spouses and dependents is a nontaxable fringe
    benefit. (I.R.C. Sec. 132)

MEALS ON PREMISES.  If meals are provided on-premises to
employees, for the convenience of the employer, the value
of such meals is usually not taxable to the employee for
income tax purposes. (I.R.C. Sec. 119)  However, the em-
ployer may only deduct 80% of the cost of furnishing such
meals.

EDUCATIONAL ASSISTANCE PLANS.  An employer may pay educa-
tional expenses on behalf of an employee, free of employ-
ment taxes or income tax to the employee, if the purpose of
such education meets one of the two following tests:

  . Education that maintains or improves skills required
    by the job; or

  . Education to meet requirements set by the employer or
    applicable laws, where such requirements are imposed
    as a condition of the retention of employment or rate
    of compensation.

Employers may also set up tax-qualified "educational assis-
tance plans" to provide other, not necessarily job-related
educational benefits for employees, in amounts up to $5,250
a year per employee. (I.R.C. Sec. 127)  To qualify, such a
plan must be in writing, disclosed to employees, and no
more than 5% of benefits paid under the plan can go to 5%
owners of the firm or their spouses or dependents.

This tax benefit expired on June 30, 1992, but has been
retroactively extended again (as Congress has routinely
done several times in the past), for the period from July
1, 1992 through December 31, 1994.

LEGAL SERVICES PLANS.  An employer may also set up a quali-
fied group legal services plan, whereby prepaid legal ser-
vices are provided to employees.  If the value of such
coverage is no more than $70 a year to the employee, no
part of any legal services actually provided to the em-
ployee under the plan (which may be worth thousands of dol-
lars in some instances) is taxable to the employee. (I.R.C.
Sec. 120)  If the value of such coverage exceeds $70, then
a proportional part of benefits are taxable.  Under a group
legal services plan, benefits may not be provided to highly
compensated employees on a discriminatory basis, and not
more than 25% of amounts contributed under the plan may be
on behalf of 5% owners of the company or their spouses or
dependents.

CAUTION:  This tax benefit expired on June 30, 1992, and,
as of this writing, has NOT been extended again by the new
1993 tax legislation (which retroactively extended several
other similar tax benefits that had also expired on June
30, 1992).  Legal services plans did not "made the cut" in
the 1993 Deficit Reduction Act, so it now seems unlikely
that this former tax-free fringe benefit will be resurrected
by Congress, in these deficit-ridden times.

DEPENDENT CARE PLANS.  This is one of the most popular and
rapidly growing types of employee fringe benefit plans in
recent years, providing up to $5,000 a year per employee of
dependent care benefits for children or elderly dependents.
However, not more than 25% of benefits provided can be on
behalf of 5% owners of the employer company, and other tech-
nical nondiscrimination rules also apply. (I.R.C. Sec. 129)