Software Club 210: Light Red/Club_Software_210_Light_Red_Micro_Star_1997.iso/sba/f136.sbe

Text File | 1997-01-13 | 6KB | 127 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 EXCLUDABLE FRINGE BENEFITS.  The following
fringe benefits are excludable both from income AND
employment 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 were limited to $155 per month -- any excess
    amounts are taxable to the employee.  This is increased
    to $160 for 1995, $165 for 1996, $170 for 1997.)

  . "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
employer may only deduct 50% of the cost of furnishing
such meals.

EDUCATIONAL ASSISTANCE PLANS. An employer may pay educational
expenses on behalf of an employee, free of employment 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
assistance 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.  It was extended again
by the Small Business Job Protection Act of 1996, through
May 31, 1997.  (Or possibly through June 30, 1997 -- The
bill as written is flawed, and Congress is considering a
technical correction to clarify the effective termination
date of this latest extension.)

Under the most recent extension, graduate level courses
(such as for law, medical school, etc.) that begin
after June 30, 1996 are no longer covered.

Note that if you paid educational benefits to or for any
employees since December 31, 1994 and treated them as
taxable, for income FICA and FUTA purposes, you may now be
able to file for refunds of those taxes, since Congress
restored the tax breaks for educational assistance plans
retroactively, to December 31, 1994.  This will be a
somewhat complex procedure, where employers will have to
file for refunds of FICA and FUTA taxes, and will refund
the employee's share of FICA taxes that were withheld, to
the employee.  Employees should request 1995 and 1996 FICA
tax reimbursement from their employers on the education
benefits on which FICA taxes were withheld.  If they cannot
get refunds from their employers, they are to file Form
843 with the IRS, requesting a refund directly from the IRS
and writing "Section 127" across the top of the form.  Those
employees who paid income tax on excludable plan benefits
in 1995 should file Form 1040X to claim a refund for the
tax paid on those amounts.

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
technical nondiscrimination rules also apply.  (I.R.C. Sec.
129)