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OregonOSPS Year-End TrainingTaxable Fringe Benefitsand Tax Forms
Presented by: Sharon McKeehan
Date: October 19, 2010
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What Is A Taxable Fringe Benefit?• The IRS says a fringe benefit is a
form of pay for the performance of services (employer gives to employee), which includes property, services, cash or cash equivalents.
• A Taxable Fringe Benefit is included in gross income and reported on form W-2 unless specifically excluded under an IRS code section.
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WHY DO WE CARE?
• The employer is responsible for proper classification and reporting– Classification = taxable or non-taxable– Reporting = included on the W-2
• Gets to the W-2 by way of payroll entries
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WHY DO WE CARE?
• Getting it right the first time– Employee’s W-2 is correct– No audit findings– Employee able to file taxes
• Accurately• Without Delay• No Amended Return
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WHY DO WE CARE?
• Not just a ‘year-end’ issue, but important to ensure accuracy at year-end. – Should monitor all year for correct capture,
classification and processing of taxable and non-taxable fringe benefits.
– Do your final check at year-end
• This responsibility falls to payroll to ensure accuracy. – Make it known that you need accurate and
timely information from your agency accounts payable section.
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Common Transactions
• Meals
• Moving Expenses
• Use of State Vehicle
• Educational Expense
• Domestic Partner Insurance
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Meals
• Taxable and reportable if there is no overnight travel
• Conference or Official Business Meeting – not taxable
• “For the Convenience of the Employer” – not taxable but has specific rules to qualify.
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Meals
• Two Ways To Process– Reimburse through OSPA using code
MST – pays cash and adds to taxable earnings. Adds amount to gross pay and reports out on Box 1 of the W-2.
– Record through OSPA using code MS – non-cash transaction that adds to taxable earnings. Use when the meal was paid through accounts payable.
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Moving Expenses
• The non-taxable portion is the cost to move the goods and the people. Includes mileage and lodging but NOT meals. – Report through OSPA using code MVN
(cash payment) Amount is reported in Box 12 on the W-2 and referenced with a code “P”.
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Moving Expenses
• Everything else is taxable. – Report through OSPA using code MVT
(cash payment). Adds amount to gross pay and reports out on Box 1 of the W-2.
• If payments made via accounts payable or to a third party, you must still record in OSPA and set up opposing PANN entries.
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Use of State Vehicle
• There is very little permission in statute for use of a state vehicle
• Generally relates to a state vehicle being garaged at home.
• The taxable portion may be:– Commute to work value of $1.50 per way –
non-cash code SVN– Cents per mile commute to work – non-cash
code SMN– Either of these will be added to gross pay and
reported on Box 1 of the W-2.
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Educational Expense
• Educational payments can either paid or recorded through OSPA.– OAM 50.10.00.PO & PR updated July
2009 to provide more flexibility for making payments, and provides more clarity about the difference between “educational expense reimbursements” and an “educational assistance program”.
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Educational Expense
• Educational expenses must be classified as taxable or non-taxable according to rules in IRC 127 and IRC 132– Code EDN is used for non-taxable payments– Code EDT is used for taxable payments
• Taxable payments are included in gross pay and will report on Box 1 of the W-2.
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Domestic Partner Insurance
• Reporting the fair market value of the partner insurance using code DPT will result in the amount being added to gross pay as a non-cash transaction and reported in Box 1 of the W-2.
• No DPT entry for those who claim their partner as a dependent for tax purposes.
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Non Taxable Under an ACCOUNTABLE PLAN• There is a business connection to
the expenditure or the reimbursement is for expenses that would be an allowable deduction for the employee on the employee’s tax returns.
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Non Taxable Under an ACCOUNTABLE PLAN
• The employee is required to provide “adequate” accounting for the expenditure (s) within a reasonable amount of time. The employee must submit receipts unless under a per diem plan.
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Non Taxable Under an ACCOUNTABLE PLAN• The employee is required to return
excess reimbursements or advances within a reasonable time.
If the policy meets all three criteria, the reimbursements are non-taxable to the employee.
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COMMON TRANSACTIONS
• Uniforms
• Special Boots or Shoes
• Safety Equipment
• Tool Allowance
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Affordable Health Care Act
• No changes for tax year 2010• Insurance coverage for older
children remains tax-free to the employee.
• Requirement to report value of health insurance has been delayed until 2012. Reporting in 2011 is “optional”– Will be in Box 12
