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CPP / FPC Study Group

CPP / FPC Study Group. Please sign in. WELCOME !. Section 3 Taxable and Nontaxable Compensation. Overview. Gross Income Income and Employment Tax Fair Market Value Fringe Benefits - Taxable and Nontaxable Employer Provided Benefits Other Payments Withholding and Reporting Taxes.

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CPP / FPC Study Group

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  1. CPP / FPC Study Group Please sign in WELCOME ! Section 3 Taxable and Nontaxable Compensation

  2. Overview • Gross Income • Income and Employment Tax • Fair Market Value • Fringe Benefits - Taxable and Nontaxable • Employer Provided Benefits • Other Payments • Withholding and Reporting Taxes

  3. Gross Income • Gross Income • Starting point for determining a taxpayer’s federal tax bill • All remuneration for employment - cash and noncash

  4. Income and Employment Tax • Federal Income Tax withheld from wages • FICA tax withheld from wages (6.2%) • Medicare Tax withheld from wages (1.45%) • FICA tax paid by employer (6.2%) • Medicare Tax paid by employer (1.45%) • FUTA Tax paid by employer

  5. Fair Market Value • IFBA = Includable Fringe Benefit Amount • FMV = Fair Market Value • EPA = Employee Paid Amount • AEL = Amount Excluded by Law • IFBA = FMV – (EPA + AEL)

  6. Taxable Compensation • Back-Pay • Bonuses • Commissions • Personal use of company vehicle • Severance pay and final vacation pay • Employer paid commuter highway vehicle transportation and transit passes in excess of $125 per month • Employer paid commuter fees in excess of $240 per month • Employer provided bicycle commuting assistance in excess of $20 per month • Fringe Benefits (unless specifically excluded) • Gifts, gift certificates, prizes and awards • Group legal services • Group Term Life insurance over $50,000 • Non-accountable reimbursed business expense • Noncash fringes unless excluded by IRC • Nonqualified moving expenses • Overtime pay • Regular wages • Sick pay and disability benefits (portion attributable to employer contributions) • Tips

  7. Nontaxable Compensation • Dependent child care assistance (up to $5000) under section 129 plan • Company vehicle (business use only) • De Minimis fringes • Disability benefits (employee contributions) • Group Term Life insurance coverage of $50,000 or less • Medical/dental/health plans (employer contributions) • No-additional-cost fringes ( see section 3.2-1 Payroll Source for conditions that must be met) • Qualified employee discounts on employer goods and services ( see section 3.2-1 Payroll Source for conditions that must be met) • Qualified moving expenses • Qualified transportation fringes • Reimbursed business expenses (if accounted for in a timely manner) • Working condition fringes which would be deductible if paid by the employee • Educational assistance for job related courses (no limit) • Non-job-related education assistance up to $5,250 under a qualified plan • Long-Term care insurance • Health Savings Account contributions

  8. Personal Use of Employer Provided Vehicles • Exception to Personal Use • De Minimis – Business only, brief side trips • Qualified Non-personal Use – Special use vehicles, police cars, school bus • Automobile Salespersons – Demo vehicles used within the sales area of the dealership if the personal use of the vehicle is substantially restricted

  9. Personal Use of Employer Provided Vehicles Cont’d • Accounting for Use – Valuation Methods • General Valuation Method • FMV = What the employee would pay to lease the same or comparable vehicle • Special Valuation Methods • Commuting Valuation Method • $1.50 one way, $3.00 round trip • Annual Lease Valuation Method • Annual lease value times the percentage of personal miles driven (see chart on page 3-21) • Annual lease value does not include the value of employer provided fuel (5.5 cents per mile in 2014) • Vehicle cents-per-mile Method • 56 cents per mile in 2014 times the number of personal miles driven • Maximum vehicle value in 2014 is $16,000 for cars, $17,300 for SUV’s, $21,100 for a fleet of 20 or more cars

  10. Other Fringe Benefits • Personal Use of Employer Provided Aircraft • General Valuation Rule • The amount an employee would pay to charter a comparable airplane and a pilot for a comparable flight • Non-commercial Flight Valuation Rule • Uses Standard industry fare level (SIFL) • Free or Discounted Commercial Flights • Discounts on Property or Services • Club Memberships • Working Condition Fringe? Buiness use must be sustantiated • Club vs. Organization • Emergency Responder Benefits • State and local tax reductions or rebates

  11. Employer Provided Benefits • Life Insurance • Group-term life insurance • The value of employee coverage over $50,000 • Dependent coverage up to $2000.00 is non taxable • Dependent coverage over $2000.00, its entire value is included in income (Page 3-29) • Whole life insurance • Employer paid portion included in income if employer is not the sole beneficiary • Split dollar life insurance

  12. Moving Expenses • Deductibility • Distance Test • Time Test • Deductible (qualified, nontaxable) moving expenses • Transportation of Household Goods • Expenses of traveling from old residence to new residence (excluding meals)

  13. Moving Expenses Cont’d • Nondeductible (nonqualified, taxable) moving expenses • Meals while in transit • House hunting trips • Real estate expenses • Reporting of moving expenses • Deductible • Nondeductible

  14. Educational Assistance • Job-Related • Not included in income • Non Job-Related • $5,250 exclusion • Group Legal Services • Became fully taxable on July 1, 1992

  15. Business Travel Expenses • Away from home • Temporary • Daily Transportation Expenses • Accountable Plan • Business Connection • Substantiation / Return Excess Amounts • Fixed Date Method - Payment made up to 30 days in advance of the expense. The expense must be substantiated within 60 days of being paid or incurred. Excess amounts returned to the employer within 120 days of expense being paid or incurred. • Periodic Statement Method – Issue statements to employee at least quarterly detailing amounts that have been paid but not substantiated. Employee must substantiate or return excess within 120 days

  16. Business Travel Expenses Cont’d • Non-accountable Plan • Payments made are fully taxable • Frequent Flyer Miles • No taxable income at this time • Substantiation vs. Per Diem allowance • Per Diem allowance is deemed substantiated as long as it does not exceed IRS established rates • Spousal and family travel expenses

  17. Employer Provided Meals and Lodging • Employer Provided Meals • Furnished on employer premise • For the convenience of the employer • Employer Provided Lodging • On the employer premises • For the convenience of the employer • Required as a condition of employment

  18. Adoption Assistance • Dollar Limitation • $13,190 per eligible child in 2014 • Income Limitation • Exclusion phased out for gross income between $197,880 and 237,880. • Eligible Child • Under the age of 18 • Qualified Expenses • Program Requirements • W2, Box 12, Code T

  19. Other Payments • Advances and Overpayments • Awards and Prizes • Length of Service • Safety Achievement • Civic and Charitable Awards • Prizes for Retail Salespeople • Back Pay Awards

  20. Other Payments Cont’d • Bonuses • Commissions • Conventions • Death Benefits • Dependent Care Assistance • $5,000 exclusion limitation • Directors’ Fees • Disaster Relief Payments • Equipment Allowance

  21. Other Payments Cont’d • Gifts • Golden Parachute Payments • Guaranteed Wage Payments • Jury Duty Pay • Leave Sharing Plans • Loans to Employees • Military Pay • Outplacement Services • Retroactive Wage Payments • Security Provided to Employees

  22. Other Payments Cont’d • Severance or Dismissal Pay • Strike Benefits • Supplemental Unemployment Benefits • Tips • Uniform Allowances • Vacation Pay • Wages Paid After Death • In same year • In subsequent year

  23. Other Payments Cont’d • Stocks and Stock Options • Stock as compensation • Stock Options • Incentive Stock Options • Stock Purchase Plan • Non Qualified Stock Options • Tax Treatment • Written Statement

  24. Gross Amount of Earnings = Desired Net Payment / (100% - Total Tax %) Desired Net = $5,000.00 Employer Paid Taxes (Gross-Up) 1. Gross Amount of Earnings = $5,000 / (100% - Total Tax %) 2. 25% = Federal Income Tax Supplemental Tax Rate 6.2% = Social Security 1.45% = Medicare 32.65% = Total Tax % 3. Gross Amount of Earnings = $5,000 / (100% - 32.65 %) 4. Gross Amount of Earnings = $5,000 / 67.35% 5. Gross Amount of Earnings = $7,423.90

  25. Withholding and Reporting for Employer Provided Benefits • Cash Fringe Benefits • Non Cash Fringe Benefits • Withholding Methods • Imputed Income • Gross Up • Special Accounting Rule • W2 Requirements

  26. Group Calculations • Work in groups or on your own.

  27. Next Class Topic : Section 4 Health, Accident and Retirement Plans

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