De Minimis Fringe Benefits
Why are De Minimis Fringe Benefits excluded under Internal Revenue Code section 132(a)(4)?
De minimis fringe benefits are excluded under Internal Revenue Code section 132(a)(4) because they allude to any property or service whose value is (in the wake of considering the recurrence with which the employer gives comparable fringes to the employees) so small as to make accounting for it administratively impracticable, or unreasonable ("De Minimis Fringe Benefits," 2021).
List 7 examples of De Minimis Fringe Benefits other than “Holiday gifts”?
Personal use of an employer-provided cell phone provided primarily for business purposes
Coffee and donuts at staff meetings or occasional meals provided to employees who must work overtime
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Occasional parties or picnics for employees and their guests
Occasional personal use of the employer's copier
Occasional tickets for theater or sporting events.
Flowers, plaques, coffee mugs, or other small gifts (other than cash) for special occasions
Occasional transportation fares, such as a bus pass or parking ticket
Cash Benefits
Could cash be considered as “De Minimis Fringe Benefits”? Why? Or, Why not?
Cash cannot be considered a de minimis fringe benefit. This is because cash is generally intended as a wage and usually provides no administrative burden to account for.
Is cash given for meals calculated on the basis of number of hours worked an example of De Minimis Fringe Benefits?
No. Meal money calculated on the basis of a number of hours worked is not de minimis and is taxable wages.
Does the IRS collect tax on cash given for meal calculated on the basis of the number of hours worked?
Yes. IRS collects tax on cash given for meals calculated on the basis of the number of hours worked because it is taxable wages.
Are gift certificates that are redeemable for general merchandise de minimis benefits?
No. Cash or cash equivalent items provided by the employer are never excludable from income. Gift certificates redeemable for general merchandise have a cash equivalent value and are not de minimis benefits and taxable.
Does the IRS collect tax on gift certificates that are redeemable for general merchandise?
Yes. IRS collects tax on gift certificates redeemable for general merchandise because they have cash equivalent value and are thus taxable.
Summarize (in one or two short paragraphs) the special rules that apply to allow exclusion from employee wages of certain employee achievement awards of tangible personal property given for the length of service or safety.
Special rules allow an employee to exclude certain achievement awards from their wages if they are tangible personal property. Gifts awarded for length of service or safety achievement awards are not taxable to the employee, so long as the gift is tangible personal property. However, the tangible personal property does not include gift certificates, meals, cash, vacations, points redeemable for merchandise, stocks or bonds, or similar items. For qualifying gifts, the tax-free value is, however, limited to $1,600 for all awards to one employee in a year.
Summarize (in one or two short paragraphs) how de minimis fringe benefits are reported.
If the benefits qualify for the exclusion, no reporting is necessary. If they are taxable, they should be included in wages on Form W-2 and subject to income tax withholding. If the employees are covered for social security and Medicare, the benefits are also subject to withholding these taxes. One may optionally report any information in box 14 of Form W-2.
Employee Benefits: Group Benefits
Per the Federal Unemployment Tax Act (FUTA), who are the FUTA taxpayers?
Employers have at least one employee who works at least 20 weeks out of the year or have paid employees at least $1,500 in any quarter.
What is the relation of FUTA tax with the employee’s wages?
The Federal Unemployment Tax Act (FUTA) is a payroll tax paid by employers on employee’s wages. The tax is 6.0% on the first $7,000 an employee earns; any earnings beyond $7,000 are not taxed.
Unemployment Insurance
What level of government (federal, state, local) laws govern the attribution of the Federal-State Unemployment Insurance Program?
The federal laws govern the attribution of the Federal-State Unemployment Insurance Program. Still, each state has its own unemployment program with its qualification guidelines, benefit periods, and benefit amounts.
In one short paragraph, describe the purpose, eligibility, and filing for application of "The Unemployment Compensation for Federal Employees program."
The Unemployment Compensation for Federal Employees (UCFE) Program provides for unemployment compensation (weekly income for a limited period of time) for Federal civilian service employees, who become jobless or furloughed through no fault of their own (as determined under State law) and who are ready, willing, and able to work. Generally, to be eligible to receive UCFE benefits; separated or furloughed employees must: Have Federal and/or civilian service and wages in the base period under the applicable State law; Meet the qualifying employment and wage requirements of the applicable State law, either based on Federal civilian service and Federal wages alone or in combination with service and wages under a State law; Be unemployed (or be employed less than full-time and earn less than an amount specified in the State law) Be available to work (i.e., ready, willing, mentally and physically able to accept work considered suitable because of past training, education, or experience); File an initial claim for UCFE that results in an eligible monetary determination, and file a timely claims for weeks of unemployment; and Register for work at a State unemployment compensation insurance office and continue to report to that office, as directed. To file for application, a former employee should contact the workforce agency of the State in which he/she is located ("UNEMPLOYMENT COMPENSATION FOR FEDERAL EMPLOYEES," n.d.).
In one short paragraph, describe the purpose, eligibility and filing for application of “The Unemployment Compensation for Ex-Service members program”
The Unemployment Compensation for Ex-service members (UCX) Program provides unemployment insurance protection to ex-service members of all ranks in the Armed Forces of the United States, who are leaving the military and who are unable to obtain employment. Eligibility for UCX requires that: one served on active duty in the military and was discharged under honorable conditions; one was on active duty with a branch of the U.S. military and he/she may be entitled to benefits based on that service; there is no payroll deduction from one’s wages for unemployment insurance protection. Benefits are paid for by the various branches of the military. To file for application, one should contact his/her state workforce agency as soon as possible after discharge. Additionally, one must bring his/her certificate of release or discharge from active duty (DD Form 214), his/her social security card, and his/her military and/or civilian job history or resume ("Unemployment compensation for ex-service members," 2019).
Federal Tax Rate
What is the taxable wage base?
The taxable wage base is the maximum amount of earned income that employees must pay Social Security taxes on.
Why do some employers receive an offset credit of up to 5.4% regardless of the rate of tax paid to the state?
Some employers receive an offset credit of up to 5.4% regardless of the rate of tax paid to the state because they pay their state unemployment taxes on a timely basis.
What is the FUTA tax rate for employers in states not subject to a FUTA credit reduction? How is it this rate determined?
The FUTA tax rate for employers in states not subject to a FUTA credit reduction is generally 0.6% (6.0% - 5.4%). This rate is determined by multiplying 6.0% times the employer's taxable wages ("Unemployment insurance tax topic," 2019).
What is the maximum FUTA tax per employee / per year? How is this maximum determined?
FUTA taxes are calculated by multiplying 6.0% times the employer's taxable wages. The taxable wage base is the first $7,000 paid in wages to each employee during a calendar year
For a maximum FUTA tax per employee per year is $42.00
Calculated as follows
6% X $7,000
And, 6% = 0.006
Therefore,
0.006 X $7, 000 = $42.00.
Health Plans
When an employer pays the cost of an accident or health insurance plan for his/her employees, including an employee’s spouse and dependents, under what circumstance such payment is classified as wage?
The above-mentioned payment is classified as a wage under the circumstances where the cost of health insurance benefits is not included in the wages of S corporation employees who own more than two percent of the S corporation (two percent shareholders).
Is such cost of an accident or health insurance plan payment subject to Social Security tax? Why or why not?
Such cost of an accident or health insurance plan payment is not subject to social security tax because they are employer’s payments not classified as wages and thus are tax exempted.
Is such cost of an accident or health insurance plan payment subject to FUTA tax? Why or why not?
Such cost of an accident or health insurance plan payment is not subject to FUTA tax because they are costs of health insurance benefits which allow workers and their families to take care of essential medical needs and are not considered part of an employee's salary and are therefore not subject to FUTA tax.
Under what circumstance such payment for the cost of an accident or health insurance plan for his/her employees by the employer is subject to federal income tax withholding? Explain your answer in a couple of sentences.
In case an employee has not enrolled in the Flexible Benefits Program, payment for the cost of an accident or health insurance plan by an employer is subject to federal income tax withholding. This is because section 125 of the Federal Tax Code permits employers to treat employee health insurance premiums as an employer-paid benefit not subject to federal and state income taxes and Social Security (FICA) taxes. The Research Foundation (RF) offers a Flexible Benefits Program that allows employees to pay health insurance premiums on a pretax basis, resulting in lower tax withholding and higher take-home pay.
Statistics of Income (SOI)
What Statistics of Income (SOI) does?
Statistics of Income (SOI) is a program and associated division of the Internal Revenue Service (IRS) in the United States to make statistics collected from income tax returns and information returns available to other government agencies and the general public.
How SOI relates to the IRS and other government agencies?
SOI sample returns from the master file system compiled by IRS processing centers analyze and process this data to become informative and share information about how the tax system works with other government agencies.
How long has SOI been collecting data ?
SOI has been collecting data since 1916.
List the 10 most important employee benefits offered by SOI
Flexible work schedules
Vacation time of 13 days a year during your first three years, increasing to 26 days per year for 15 or more years of service.
Public transportation subsidies
Three types of life insurance coverage
Sick leave of 13 days per year and 10 paid Federal holidays per year
A wide selection of health insurance plans, with the Federal Government assuming up to 75 percent of the cost
Federal credit union
Fitness center
A three-tiered retirement system and thrift savings plan with matching contributions up to 5 percent of your annual pay.
Employee assistance programs and career development center
What types of academic qualifications are required by SOI from its prospective employee?
SOI requires a bachelor's degree from an accredited college or university, GPA of 3.0 or higher on all undergraduate course work or for all courses taken during the last two years of the curriculum, or Membership in a recognized national scholastic honor society, or Standing in the upper third of the college or university graduating class from its prospective employees. ("SOI tax stats - About SOI," 2020)
References
De Minimis Fringe Benefits . (2021, April 12). Internal Revenue Service | An Official Website of the United States Government. Retrieved April 18, 2021, from https://www.irs.gov/government-entities/federal-state-local-governments/de-minimis-fringe-benefits
SOI tax stats - About SOI . (2020, December 3). Internal Revenue Service | An official website of the United States government. Retrieved April 18, 2021, from https://www.irs.gov/statistics/soi-tax-stats-about-soi
Unemployment compensation for ex-service members . (2019, November 1). Unemployment Insurance Benefit Payments, Employment & Training Administration (ETA) - U.S. Department of Labor. Retrieved April 18, 2021, from https://oui.doleta.gov/unemploy/ucx.asp
UNEMPLOYMENT COMPENSATION FOR FEDERAL EMPLOYEES . (n.d.). Foreign Affairs Manual: U.S. Department of State. Retrieved April 18, 2021, from https://fam.state.gov/FAM/03FAM/03FAM3640.html
Unemployment insurance tax topic . (2019, November 1). Unemployment Insurance Benefit Payments, Employment & Training Administration (ETA) - U.S. Department of Labor. Retrieved April 18, 2021, from https://oui.doleta.gov/unemploy/uitaxtopic.asp
