Internal Revenue Code section 132(a)

Last updated

Internal Revenue Code Section 132(a) provides eight types of fringe benefits that are excluded from gross income. These include fringe benefits which qualify as a (1) no-additional-cost service, (2) qualified employee discount, (3) working condition fringe, (4) de minimis fringe, (5) qualified transportation fringe, (6) qualified moving expense reimbursement, (7) qualified retirement planning services, or (8) qualified military base realignment and closure fringe. [1]

Contents

Fringe benefits excluded from gross income

No-Additional-Cost Service

A No-Additional-Cost Service is defined in Section 132(b) as any service provided by an employer to an employee if (1) the service is offered for sale to customers in the ordinary course of the employer's business and (2) the employer incurs no substantial additional cost in providing the service to the employee. [2]

Qualified Employee Discount

A Qualified Employee Discount is defined in Section 132(c) as any employee discount with respect to qualified property or services to the extent the discount does not exceed (a) the gross profit percentage of the price at which the property is being offered by the employer to customers, in the case of property, or (b) 20% of the price offered for services by the employer to customers, in the case of services. [2]

Working Condition Fringe

Working Condition Fringe is defined in Section 132(d) as any property or services provided to an employee so that the employee is able to perform her job. Examples include a company car for business travel, a cell phone provided primarily for business purposes, and job-related education. [2]

For job-related education, the education must maintain or improve skills required as part of the job or that meet the express requirements of the employer. [3] The educational requirements must be imposed as a condition of continued employment, status, or pay level, or satisfy new requirements of the position after hire. [3] The educational requirements cannot simply satisfy the minimum educational requirements to qualify for employment. [3]

If an employer pays for an employee's income tax return preparation, the expense does not qualify for a working condition fringe. [4]

De Minimis Fringe

De Minimis Fringe is defined in Section 132(e)(1) as any property or service given to an employee by the employer which, after taking into account the frequency provided, has a value is so small as to make accounting for it unreasonable or administratively impracticable. Examples of de minimis fringe includes personal use of an employer-provided cell phone provided primarily for business purposes; occasional personal use of the employer's copier; low-value holiday gifts, other than cash or gift cards; occasional parties or picnics for employees and their guests; occasional tickets for theater or sporting events. [2]

Under Section 1.132-6(b)(1) of the Treasury Regulations, all similar fringes must be considered together to determine whether they are de minimis. [5] One free meal given to all employees once a year would qualify because the meals are infrequently provided. [5] One free meal provided to a different employee each week throughout the year would not qualify. [5]

Under Section 1.132-6(c) of the Treasury Regulations, cash never qualifies as a de minims fringe. [5] Cash or gift certificates provided to an employee so the employee may buy a theater ticket does not qualify. [5] [6] It would qualify, however, if the employer purchases the theater ticket, provides the actual theater ticket to the employee, and the employer infrequently gives out tickets to employees. [5]

Gift cards never qualify if they are redeemable for variety of merchandise [7] or have a cash equivalent value. [8] Gift cards do not qualify if they have a specific face value and are redeemable for merchandise at a store. [9] If a gift certificate allows an employee to receive a specific item of low-value personal property, it is administratively impractical for the employer to account for the gift certificate, and the employer infrequently provides gift certificates to employees, then the gift certificate qualifies. [8] [10]

Although the Internal Revenue Service has not defined low-value, it has stated that an item worth $100 is not a low-value item. [11] [12]

While the Internal Revenue Service does not define infrequently, gifts to employees on a quarterly basis would not qualify as a de minimis fringe benefit. [13]

Examples of tax-free de minimus fringe benefits include occasional typing of personal letters by an employee of the employer; occasional personal use of the employer's copier as long as at least 85 percent of the copier's use is for business purposes; occasional parties for employees and their guests; gifts of property (not cash) with a low fair-market value for a birthday, holiday, performance, illness, or family crisis; occasional tickets to a theater or sporting event; coffee, doughnuts, and soft drinks for employees; and personal telephone calls made by employees. [14] [15] [16]

Qualified Transportation Fringe

Qualified transportation fringe is defined in Section 132(f) as (1)(A) transportation in a commuter highway vehicle between the employee's residence and place of employment, (B) any transit pass, or (C) qualified parking, if provided by an employer to an employee.

An employer-paid bicycle commuter benefit qualified between January 1, 2009, and December 31, 2017. [2] [17]

Provision of tax-free qualified transportation fringe benefits to employees on or after January 1, 2018 is not tax-deductible to the employer as an ordinary business expense. [18] Per the Tax Cuts and Jobs Act of 2017, Tax-exempt employers must report tax-free qualified transportation fringe benefits provided to employees on or after January 1, 2018, as unrelated business income. The Taxpayer Certainty and Disaster Tax Relief Act of 2019 repealed that provision of the 2017 law so that thease benefits are no longer required to be reported as unrelated business income and no taxes are owed on such benefits. [19]

Qualified Moving Expense Reimbursement

Qualified Moving Expense Reimbursement is defined in Section 132(g) as any amount received by an individual from an employer as payment for expenses that would be deductible as moving expenses under Section 217 if paid by the individual. [2]

In accordance with the Tax Cuts and Jobs Act of 2017, Qualifying Moving Expense Reimbursement is no longer a tax-free benefit as of January 1, 2018, with the exception of individuals in the military moving due to military orders. [20]

Qualified Retirement Planning Services

Qualified Retirement Planning Services is defined in Section 132(m) as retirement planning advice or information provided to an employee and spouse by an employer maintaining a qualified employer plan. [2]

Qualified Military Base Realignment and Closure Fringe

Qualified Military Base Realignment and Closure Fringe is defined in Section 132(n) as one or more payments under Section 1013 of the Demonstration Cities and Metropolitan Development Act of 1966 to offset the adverse effects on housing values from military base realignment or closure. [2]

Other tax-free fringe benefits

Other fringe benefits may be excluded from taxable income under other sections of the Internal Revenue Code.

Section 74(c) excludes employee achievement awards given to employees for their service (five years or more) or safety record. [21] The award must be a tangible item, not cash or gift cards; must be given to employee as part of a meaningful presentation; and cannot seem to be disguised compensation. [22] An employer must have a written policy regarding such awards, awards must total no more than $1,600 per year, and the average award must not exceed $400. [22] An award does not qualify as a tax-free employee achievement award if the award is cash, cash equivalents, gift cards, gift certificates, vacations, meals, lodging, tickets to events, stocks, bonds, other securities, and similar items. [17]

Section 79 excludes $50,000 worth of group term life insurance coverage provided by an employer to an employee. [23]

Section 104 excludes qualifying compensation by an employer for injury or sickness, such as through a workers' compensation insurance policy. [23]

Section 105 excludes qualifying health or accident insurance benefits received through an employer. [23]

Section 106(a) excludes qualifying accident and health insurance coverage provided by an employer. [23]

Section 117(d) excludes qualified tuition reductions. [23]

Section 119 excludes certain meals or lodging provided to the employee for the employer's convenience. [23] The meals must be provided for a substantially non-compensatory reason that clearly benefits the employer rather than the employee. [15] [24] Examples include meals provided to an employee during the employee's working hours for an employee who must remain on site for emergencies that are reasonably expected to occur and that the employee would be required to remedy during the employee's meal period. [15] [24] Providing meals to employees in order to foster collaboration, morale, and overall well-being are not considered to be provided for the employer's convenience. [15]

Section 125 excludes cafeteria plans, including health flexible savings account plans. [23]

Section 127 excludes qualifying educational assistance plans. [23]

Section 129 excludes a qualifying dependent care assistance program, such as a dependent care flexible spending account plan. [23]

Section 137 excludes a qualifying adoption assistance programs. [23]

Related Research Articles

In the United States, a 401(k) plan is an employer-sponsored, defined-contribution, personal pension (savings) account, as defined in subsection 401(k) of the U.S. Internal Revenue Code. Periodical employee contributions come directly out of their paychecks, and may be matched by the employer. This legal option is what makes 401(k) plans attractive to employees, and many employers offer this option to their (full-time) workers.

Corporate-owned life insurance (COLI), is life insurance on employees' lives that is owned by the employer, with benefits payable either to the employer or directly to the employee's families. Other names for the practice include janitor's insurance and dead peasants insurance. When the employer is a bank, the insurance is known as a bank owned life insurance (BOLI).

<span class="mw-page-title-main">Retirement plans in the United States</span>

A retirement plan is a financial arrangement designed to replace employment income upon retirement. These plans may be set up by employers, insurance companies, trade unions, the government, or other institutions. Congress has expressed a desire to encourage responsible retirement planning by granting favorable tax treatment to a wide variety of plans. Federal tax aspects of retirement plans in the United States are based on provisions of the Internal Revenue Code and the plans are regulated by the Department of Labor under the provisions of the Employee Retirement Income Security Act (ERISA).

<span class="mw-page-title-main">Employee benefits</span> Non-wage compensation provided to employees in addition to normal wages or salaries

Employee benefits and benefits in kind include various types of non-wage compensation provided to employees in addition to their normal wages or salaries. Instances where an employee exchanges (cash) wages for some other form of benefit is generally referred to as a "salary packaging" or "salary exchange" arrangement. In most countries, most kinds of employee benefits are taxable to at least some degree. Examples of these benefits include: housing furnished or not, with or without free utilities; group insurance ; disability income protection; retirement benefits; daycare; tuition reimbursement; sick leave; vacation ; social security; profit sharing; employer student loan contributions; conveyancing; long service leave; domestic help (servants); and other specialized benefits.

The Internal Revenue Code (IRC), formally the Internal Revenue Code of 1986, is the domestic portion of federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 of the United States Code (USC). It is organized topically, into subtitles and sections, covering income tax in the United States, payroll taxes, estate taxes, gift taxes, and excise taxes; as well as procedure and administration. The Code's implementing federal agency is the Internal Revenue Service.

A gift tax or known originally as inheritance tax is a tax imposed on the transfer of ownership of property during the giver's life. The United States Internal Revenue Service says that a gift is "Any transfer to an individual, either directly or indirectly, where full compensation is not received in return."

For households and individuals, gross income is the sum of all wages, salaries, profits, interest payments, rents, and other forms of earnings, before any deductions or taxes. It is opposed to net income, defined as the gross income minus taxes and other deductions.

Section 61 of the Internal Revenue Code defines "gross income," the starting point for determining which items of income are taxable for federal income tax purposes in the United States. Section 61 states that "[e]xcept as otherwise provided in this subtitle, gross income means all income from whatever source derived [. .. ]". The United States Supreme Court has interpreted this to mean that Congress intended to express its full power to tax incomes to the extent that such taxation is permitted under Article I, Section 8, Clause 1 of the Constitution of the United States and under the Constitution's Sixteenth Amendment.

<span class="mw-page-title-main">Fringe benefits tax (Australia)</span> Australian tax system

The fringe benefits tax (FBT) is a tax applied within the Australian tax system by the Australian Taxation Office. The tax is levied on most non-cash benefits that an employer provides "in respect of employment." The tax is levied on the employer, not the employee, and will be levied irrespective of whether the benefit is provided directly to the employee or to an associate of the employee.

Fringe benefits tax (FBT) within the system of taxation in New Zealand is the tax applied to most, although not all, fringe benefits ("perks"), including the ones provided through someone other than an employer. FBT is paid to Inland Revenue by the employer and is calculated with reference to the taxable value of the benefit provided to the employee or associate.

<span class="mw-page-title-main">Cafeteria plan</span>

A cafeteria plan or cafeteria system is a type of employee benefit plan offered in the United States pursuant to Section 125 of the Internal Revenue Code. Its name comes from the earliest such plans that allowed employees to choose between different types of benefits, similar to the ability of a customer to choose among available items in a cafeteria. Qualified cafeteria plans are excluded from gross income. To qualify, a cafeteria plan must allow employees to choose from two or more benefits consisting of cash or qualified benefit plans. The Internal Revenue Code explicitly excludes deferred compensation plans from qualifying as a cafeteria plan subject to a gross income exemption. Section 125 also provides two exceptions.

Under U.S. Federal law, 26 USC 102(c) governs the income tax treatment, by an employee, of gifts received by an employee from his or her employer. While gifts are typically exempt from gross income under U.S. federal income tax law, this is not usually so for gifts received from employers. Under Internal Revenue Code section 102(c), gifts transferred by or for an employer to, or for the benefit of, an employee, cannot generally be excluded from gross income.

Commissioner v. Kowalski, 434 U.S. 77 (1977), is a decision of the United States Supreme Court relating to taxation of meals furnished by an employer. In this case, the Court interpreted Internal Revenue Code §119(a)-(b)(4) and (d) and Treas. Reg. §1.119-1.

A Health and welfare trust (HAWT) or Health and welfare plan (HAWP) is a tax-free vehicle for financing a corporation's healthcare costs for their employees. They were introduced in 1986 by Canada Revenue Agency (CRA) in their interpretation bulletin entitled IT-85R2. Many companies offer this product to Canadian employers.

De minimis fringe benefits are low-value perks provided by an employer; de minimis is legal Latin for "minimal".

An employer in the United States may provide transportation benefits to their employees that are tax free up to a certain limit. Under the U.S. Internal Revenue Code section 132(a), the qualified transportation benefits are one of the eight types of statutory employee benefits that are excluded from gross income in calculating federal income tax. The qualified transportation benefits are transit passes, vanpooling, bicycling, and parking associated with these things.

Benaglia v. Commissioner 36 B.T.A. 838 (1937) is a United States income tax case heard in the U.S. Board of Tax Appeals, discussing when an employee can exclude employer-provided benefits from his income. The Board held that a taxpayer employee may exclude the value of food and lodging received from his employer, if he receives it solely for the convenience of his employer and as a necessary incident of the proper performance of his duty. The meals-and-lodging exclusion has been formalized as §119 in the tax code.

Section 79 of the U.S. Internal Revenue Code sets out the U.S. Federal income tax law concerning term life insurance plans provided by employers. Tax benefits are available for both employers and participating employees, under certain conditions.

Compensation and benefits (C&B) is a sub-discipline of human resources, focused on employee compensation and benefits policy-making. While compensation and benefits are tangible, there are intangible rewards such as recognition, work-life and development. Combined, these are referred to as total rewards. The term "compensation and benefits" refers to the discipline as well as the rewards themselves.

<span class="mw-page-title-main">Employee compensation in the United States</span>

Employer compensation in the United States refers to the cash compensation and benefits that an employee receives in exchange for the service they perform for their employer. Approximately 93% of the working population in the United States are employees earning a salary or wage.

References

  1. ↑ "26 U.S. Code § 132 - Certain fringe benefits". Internal Revenue Code. Legal Information Institute, Cornell University Law School.
  2. 1 2 3 4 5 6 7 8 "Publication 15-B: Employer's Tax Guide to Fringe Benefits". Internal Revenue Service. 2016.
  3. 1 2 3 "Public Letter Ruling 200206053". Internal Revenue Service. December 12, 2001.
  4. ↑ "Private Letter Ruling 200137039". Internal Revenue Service. September 14, 2001.
  5. 1 2 3 4 5 6 "Private Letter Ruling 201005014". Internal Revenue Service. February 5, 2010.
  6. ↑ "26 CFR 1.132-6 - De minimis fringes". Internal Revenue Service. Legal Information Institute, Cornell University Law School.
  7. ↑ "FAQs for Government Entities Regarding De Minimis Fringe Benefits". Internal Revenue Service. Archived from the original on August 17, 2007.
  8. 1 2 "De Minimis Fringe Benefits Archived 2016-05-08 at the Wayback Machine ". Internal Revenue Service. January 19, 2016.
  9. ↑ "De Minimis Fringe Benefits". Vice President for Finance Division. University of Louisville.
  10. ↑ "Review of De Minimis Fringe Benefits". Employer Solutions Group. October 1, 2011.
  11. ↑ "IRS Begins to Define De Minimis Fringes [ permanent dead link ]". HR.com. June 14, 2001.
  12. ↑ "Chief Counsel Advice Memorandum 200108042". Internal Revenue Service. December 20, 2000.
  13. ↑ "Gift Certificates as de Minimis Fringe Benefits Archived 2016-06-03 at the Wayback Machine ". American Payroll Association, Orange County Chapter. September 2, 2014.
  14. ↑ "Section 1.132-6(3) De minimis fringes". Internal Revenue Code. Retrieved December 22, 2019.
  15. 1 2 3 4 Walker, Deborah (May 10, 2019). "Employee Meals for the Convenience of the Employer". Cherry Bekaert LLP.
  16. ↑ "Technical Advice Memorandum 201903017". Internal Revenue Service. September 18, 2018.
  17. 1 2 Miller, Stephen. "President Signs Tax Bill Altering Employee Benefits". Society for Human Resource Management . December 20, 2017.
  18. ↑ Schwartz, Bruce H. (January 3, 2018). "2018 Tax Reform Series: Tax Law Changes to Employee Fringe Benefits". Benefits Law Advisor. Jackson Lewis P.C.
  19. ↑ Benion, Ahsaki (February 14, 2020). "". Carter/Ledyard .
  20. ↑ "H.R. 1". 115th Congress (2017-2018). Retrieved December 24, 2017.
  21. ↑ "26 U.S. Code § 74 - Prizes and awards". Internal Revenue Service. Legal Information Institute, Columbia Law School. Accessed on May 3, 2016.
  22. 1 2 "26 U.S. Code § 274 - Disallowance of certain entertainment, etc., expenses". Internal Revenue Service. Legal Information Institute, Columbia Law School. Accessed on May 3, 2016.
  23. 1 2 3 4 5 6 7 8 9 10 "Taxable Fringe Benefit Guide". Internal Revenue Service. 2012.
  24. 1 2 "Section 1.119-1(a)(2)(i)". Internal Revenue Service. Legal Information Institute. Cornell University Law School. Retrieved May 14, 2019.

Further reading

This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.