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Income Tax Preparations

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Income Tax Preparations

Income tax preparations 5. Income tax preparations   Ministers and Church Employees Table of Contents Alternative Limit for Church Employees Changes to Includible Compensation for Most Recent Year of ServiceChanges to Includible Compensation Changes to Years of Service Self-employed ministers and church employees who participate in 403(b) plans generally follow the same rules as other 403(b) plan participants. Income tax preparations This means that if you are a self-employed minister or a church employee, your MAC generally is the lesser of: Your limit on annual additions, or Your limit on elective deferrals. Income tax preparations For most ministers and church employees, the limit on annual additions is figured without any changes. Income tax preparations This means that if you are a minister or church employee, your limit on annual additions generally is the lesser of: $51,000 for 2013 and $52,000 for 2014, or Your includible compensation for your most recent year of service. Income tax preparations Although, in general, the same limit applies, church employees can choose an alternative limit and there are changes in how church employees, foreign missionaries, and self-employed ministers figure includible compensation for the most recent year of service. Income tax preparations This chapter will explain the alternative limit and the changes. Income tax preparations Who is a church employee?   A church employee is anyone who is an employee of a church or a convention or association of churches, including an employee of a tax-exempt organization controlled by or associated with a church or a convention or association of churches. Income tax preparations Alternative Limit for Church Employees If you are a church employee, you can choose to use $10,000 a year as your limit on annual additions, even if your annual additions computed under the general rule is less. Income tax preparations Total contributions over your lifetime under this choice cannot be more than $40,000. Income tax preparations Changes to Includible Compensation for Most Recent Year of Service There are two types of changes in determining includible compensation for the most recent year of service. Income tax preparations They are: Changes in how the includible compensation of foreign missionaries and self-employed ministers is figured, and A change to the years that are counted when figuring the most recent year of service for church employees and self-employed ministers. Income tax preparations Changes to Includible Compensation Includible compensation is figured differently for foreign missionaries and self-employed ministers. Income tax preparations Foreign missionary. Income tax preparations   If you are a foreign missionary, your includible compensation includes foreign earned income that may otherwise be excludable from your gross income under section 911. Income tax preparations   If you are a foreign missionary, and your adjusted gross income is $17,000 or less, contributions to your 403(b) account will not be treated as exceeding the limit on annual additions if the contributions are not in excess of $3,000. Income tax preparations   You are a foreign missionary if you are either a layperson or a duly ordained, commissioned, or licensed minister of a church and you meet both of the following requirements. Income tax preparations You are an employee of a church or convention or association of churches. Income tax preparations You are performing services for the church outside the United States. Income tax preparations Self-employed minister. Income tax preparations   If you are a self-employed minister, you are treated as an employee of a tax-exempt organization that is a qualified employer. Income tax preparations Your includible compensation is your net earnings from your ministry minus the contributions made to the retirement plan on your behalf and the deductible portion of your self-employment tax. Income tax preparations Changes to Years of Service Generally, only service with the employer who maintains your 403(b) account can be counted when figuring your limit on annual additions. Income tax preparations Church employees. Income tax preparations   If you are a church employee, treat all of your years of service as an employee of a church or a convention or association of churches as years of service with one employer. Income tax preparations Self-employed minister. Income tax preparations   If you are a self-employed minister, your years of service include full and part years during which you were self-employed. Income tax preparations Prev  Up  Next   Home   More Online Publications
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The Income Tax Preparations

Income tax preparations Publication 15-B - Main Content Table of Contents 1. Income tax preparations Fringe Benefit OverviewAre Fringe Benefits Taxable? Cafeteria Plans Simple Cafeteria Plans 2. Income tax preparations Fringe Benefit Exclusion RulesAccident and Health Benefits Achievement Awards Adoption Assistance Athletic Facilities De Minimis (Minimal) Benefits Dependent Care Assistance Educational Assistance Employee Discounts Employee Stock Options Employer-Provided Cell Phones Group-Term Life Insurance Coverage Health Savings Accounts Lodging on Your Business Premises Meals Moving Expense Reimbursements No-Additional-Cost Services Retirement Planning Services Transportation (Commuting) Benefits Tuition Reduction Working Condition Benefits 3. Income tax preparations Fringe Benefit Valuation RulesGeneral Valuation Rule Cents-Per-Mile Rule Commuting Rule Lease Value Rule Unsafe Conditions Commuting Rule 4. Income tax preparations Rules for Withholding, Depositing, and ReportingTransfer of property. Income tax preparations Amount of deposit. Income tax preparations Limitation. Income tax preparations Conformity rules. Income tax preparations Election not to withhold income tax. Income tax preparations How To Get Tax Help 1. Income tax preparations Fringe Benefit Overview A fringe benefit is a form of pay for the performance of services. Income tax preparations For example, you provide an employee with a fringe benefit when you allow the employee to use a business vehicle to commute to and from work. Income tax preparations Performance of services. Income tax preparations   A person who performs services for you does not have to be your employee. Income tax preparations A person may perform services for you as an independent contractor, partner, or director. Income tax preparations Also, for fringe benefit purposes, treat a person who agrees not to perform services (such as under a covenant not to compete) as performing services. Income tax preparations Provider of benefit. Income tax preparations   You are the provider of a fringe benefit if it is provided for services performed for you. Income tax preparations You are considered the provider of a fringe benefit even if a third party, such as your client or customer, provides the benefit to your employee for services the employee performs for you. Income tax preparations For example, if, in exchange for goods or services, your customer provides day care services as a fringe benefit to your employees for services they provide for you as their employer, then you are the provider of this fringe benefit even though the customer is actually providing the day care. Income tax preparations Recipient of benefit. Income tax preparations   The person who performs services for you is considered the recipient of a fringe benefit provided for those services. Income tax preparations That person may be considered the recipient even if the benefit is provided to someone who did not perform services for you. Income tax preparations For example, your employee may be the recipient of a fringe benefit you provide to a member of the employee's family. Income tax preparations Are Fringe Benefits Taxable? Any fringe benefit you provide is taxable and must be included in the recipient's pay unless the law specifically excludes it. Income tax preparations Section 2 discusses the exclusions that apply to certain fringe benefits. Income tax preparations Any benefit not excluded under the rules discussed in section 2 is taxable. Income tax preparations Including taxable benefits in pay. Income tax preparations   You must include in a recipient's pay the amount by which the value of a fringe benefit is more than the sum of the following amounts. Income tax preparations Any amount the law excludes from pay. Income tax preparations Any amount the recipient paid for the benefit. Income tax preparations The rules used to determine the value of a fringe benefit are discussed in section 3. Income tax preparations   If the recipient of a taxable fringe benefit is your employee, the benefit is subject to employment taxes and must be reported on Form W-2, Wage and Tax Statement. Income tax preparations However, you can use special rules to withhold, deposit, and report the employment taxes. Income tax preparations These rules are discussed in section 4. Income tax preparations   If the recipient of a taxable fringe benefit is not your employee, the benefit is not subject to employment taxes. Income tax preparations However, you may have to report the benefit on one of the following information returns. Income tax preparations If the recipient receives the benefit as: Use: An independent contractor Form 1099-MISC, Miscellaneous Income A partner Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Income tax preparations For more information, see the instructions for the forms listed above. Income tax preparations Cafeteria Plans A cafeteria plan, including a flexible spending arrangement, is a written plan that allows your employees to choose between receiving cash or taxable benefits instead of certain qualified benefits for which the law provides an exclusion from wages. Income tax preparations If an employee chooses to receive a qualified benefit under the plan, the fact that the employee could have received cash or a taxable benefit instead will not make the qualified benefit taxable. Income tax preparations Generally, a cafeteria plan does not include any plan that offers a benefit that defers pay. Income tax preparations However, a cafeteria plan can include a qualified 401(k) plan as a benefit. Income tax preparations Also, certain life insurance plans maintained by educational institutions can be offered as a benefit even though they defer pay. Income tax preparations Qualified benefits. Income tax preparations   A cafeteria plan can include the following benefits discussed in section 2. Income tax preparations Accident and health benefits (but not Archer medical savings accounts (Archer MSAs) or long-term care insurance). Income tax preparations Adoption assistance. Income tax preparations Dependent care assistance. Income tax preparations Group-term life insurance coverage (including costs that cannot be excluded from wages). Income tax preparations Health savings accounts (HSAs). Income tax preparations Distributions from an HSA may be used to pay eligible long-term care insurance premiums or qualified long-term care services. Income tax preparations Benefits not allowed. Income tax preparations   A cafeteria plan cannot include the following benefits discussed in section 2. Income tax preparations Archer MSAs. Income tax preparations See Accident and Health Benefits in section 2. Income tax preparations Athletic facilities. Income tax preparations De minimis (minimal) benefits. Income tax preparations Educational assistance. Income tax preparations Employee discounts. Income tax preparations Employer-provided cell phones. Income tax preparations Lodging on your business premises. Income tax preparations Meals. Income tax preparations Moving expense reimbursements. Income tax preparations No-additional-cost services. Income tax preparations Transportation (commuting) benefits. Income tax preparations Tuition reduction. Income tax preparations Working condition benefits. Income tax preparations It also cannot include scholarships or fellowships (discussed in Publication 970, Tax Benefits for Education). Income tax preparations $2,500 limit on a health flexible spending arrangement (FSA). Income tax preparations   For plan years beginning after December 31, 2012, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $2,500. Income tax preparations For plan years beginning after December 31, 2013, the limit is unchanged at $2,500. Income tax preparations   A cafeteria plan offering a health FSA must be amended to specify the $2,500 limit (or any lower limit set by the employer). Income tax preparations While cafeteria plans generally must be amended on a prospective basis, an amendment that is adopted on or before December 31, 2014, may be made effective retroactively, provided that in operation the cafeteria plan meets the limit for plan years beginning after December 31, 2012. Income tax preparations A cafeteria plan that does not limit health FSA contributions to the dollar limit is not a cafeteria plan and all benefits offered under the plan are includible in the employee's gross income. Income tax preparations   For more information, see Notice 2012-40, 2012-26 I. Income tax preparations R. Income tax preparations B. Income tax preparations 1046, available at www. Income tax preparations irs. Income tax preparations gov/irb/2012-26_IRB/ar09. Income tax preparations html. Income tax preparations Employee. Income tax preparations   For these plans, treat the following individuals as employees. Income tax preparations A current common-law employee. Income tax preparations See section 2 in Publication 15 (Circular E) for more information. Income tax preparations A full-time life insurance agent who is a current statutory employee. Income tax preparations A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Income tax preparations Exception for S corporation shareholders. Income tax preparations   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Income tax preparations A 2% shareholder for this purpose is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Income tax preparations Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Income tax preparations Plans that favor highly compensated employees. Income tax preparations   If your plan favors highly compensated employees as to eligibility to participate, contributions, or benefits, you must include in their wages the value of taxable benefits they could have selected. Income tax preparations A plan you maintain under a collective bargaining agreement does not favor highly compensated employees. Income tax preparations   A highly compensated employee for this purpose is any of the following employees. Income tax preparations An officer. Income tax preparations A shareholder who owns more than 5% of the voting power or value of all classes of the employer's stock. Income tax preparations An employee who is highly compensated based on the facts and circumstances. Income tax preparations A spouse or dependent of a person described in (1), (2), or (3). Income tax preparations Plans that favor key employees. Income tax preparations   If your plan favors key employees, you must include in their wages the value of taxable benefits they could have selected. Income tax preparations A plan favors key employees if more than 25% of the total of the nontaxable benefits you provide for all employees under the plan go to key employees. Income tax preparations However, a plan you maintain under a collective bargaining agreement does not favor key employees. Income tax preparations   A key employee during 2014 is generally an employee who is either of the following. Income tax preparations An officer having annual pay of more than $170,000. Income tax preparations An employee who for 2014 is either of the following. Income tax preparations A 5% owner of your business. Income tax preparations A 1% owner of your business whose annual pay was more than $150,000. Income tax preparations Simple Cafeteria Plans Eligible employers meeting contribution requirements and eligibility and participation requirements can establish a simple cafeteria plan. Income tax preparations Simple cafeteria plans are treated as meeting the nondiscrimination requirements of a cafeteria plan and certain benefits under a cafeteria plan. Income tax preparations Eligible employer. Income tax preparations   You are an eligible employer if you employ an average of 100 or fewer employees during either of the 2 preceding years. Income tax preparations If your business was not in existence throughout the preceding year, you are eligible if you reasonably expect to employ an average of 100 or fewer employees in the current year. Income tax preparations If you establish a simple cafeteria plan in a year that you employ an average of 100 or fewer employees, you are considered an eligible employer for any subsequent year as long as you do not employ an average of 200 or more employees in a subsequent year. Income tax preparations Eligibility and participation requirements. Income tax preparations   These requirements are met if all employees who had at least 1,000 hours of service for the preceding plan year are eligible to participate and each employee eligible to participate in the plan may elect any benefit available under the plan. Income tax preparations You may elect to exclude from the plan employees who: Are under age 21 before the close of the plan year, Have less than 1 year of service with you as of any day during the plan year, Are covered under a collective bargaining agreement, or Are nonresident aliens working outside the United States whose income did not come from a U. Income tax preparations S. Income tax preparations source. Income tax preparations Contribution requirements. Income tax preparations   You must make a contribution to provide qualified benefits on behalf of each qualified employee in an amount equal to: A uniform percentage (not less than 2%) of the employee’s compensation for the plan year, or An amount which is at least 6% of the employee’s compensation for the plan year or twice the amount of the salary reduction contributions of each qualified employee, whichever is less. Income tax preparations If the contribution requirements are met using option (2), the rate of contribution to any salary reduction contribution of a highly compensated or key employee can not be greater than the rate of contribution to any other employee. Income tax preparations More information. Income tax preparations   For more information about cafeteria plans, see section 125 of the Internal Revenue Code and its regulations. Income tax preparations 2. Income tax preparations Fringe Benefit Exclusion Rules This section discusses the exclusion rules that apply to fringe benefits. Income tax preparations These rules exclude all or part of the value of certain benefits from the recipient's pay. Income tax preparations The excluded benefits are not subject to federal income tax withholding. Income tax preparations Also, in most cases, they are not subject to social security, Medicare, or federal unemployment (FUTA) tax and are not reported on Form W-2. Income tax preparations This section discusses the exclusion rules for the following fringe benefits. Income tax preparations Accident and health benefits. Income tax preparations Achievement awards. Income tax preparations Adoption assistance. Income tax preparations Athletic facilities. Income tax preparations De minimis (minimal) benefits. Income tax preparations Dependent care assistance. Income tax preparations Educational assistance. Income tax preparations Employee discounts. Income tax preparations Employee stock options. Income tax preparations Employer-provided cell phones. Income tax preparations Group-term life insurance coverage. Income tax preparations Health savings accounts (HSAs). Income tax preparations Lodging on your business premises. Income tax preparations Meals. Income tax preparations Moving expense reimbursements. Income tax preparations No-additional-cost services. Income tax preparations Retirement planning services. Income tax preparations Transportation (commuting) benefits. Income tax preparations Tuition reduction. Income tax preparations Working condition benefits. Income tax preparations See Table 2-1, later, for an overview of the employment tax treatment of these benefits. Income tax preparations Table 2-1. Income tax preparations Special Rules for Various Types of Fringe Benefits (For more information, see the full discussion in this section. Income tax preparations ) Treatment Under Employment Taxes Type of Fringe Benefit Income Tax Withholding Social Security and Medicare (including Additional Medicare Tax when wages are paid in excess of $200,000) Federal Unemployment (FUTA) Accident and health benefits Exempt1,2, except for long-term care benefits provided through a flexible spending or similar arrangement. Income tax preparations Exempt, except for certain payments to S corporation employees who are 2% shareholders. Income tax preparations Exempt Achievement awards Exempt1 up to $1,600 for qualified plan awards ($400 for nonqualified awards). Income tax preparations Adoption assistance Exempt1,3 Taxable Taxable Athletic facilities Exempt if substantially all use during the calendar year is by employees, their spouses, and their dependent children and the facility is operated by the employer on premises owned or leased by the employer. Income tax preparations De minimis (minimal) benefits Exempt Exempt Exempt Dependent care assistance Exempt3 up to certain limits, $5,000 ($2,500 for married employee filing separate return). Income tax preparations Educational assistance Exempt up to $5,250 of benefits each year. Income tax preparations (See Educational Assistance , later in this section. Income tax preparations ) Employee discounts Exempt3 up to certain limits. Income tax preparations (See Employee Discounts , later in this section. Income tax preparations ) Employee stock options See Employee Stock Options , later in this section. Income tax preparations Employer-provided cell phones Exempt if provided primarily for noncompensatory business purposes. Income tax preparations Group-term life insurance coverage Exempt Exempt1,4, 7 up to cost of $50,000 of coverage. Income tax preparations (Special rules apply to former employees. Income tax preparations ) Exempt Health savings accounts (HSAs) Exempt for qualified individuals up to the HSA contribution limits. Income tax preparations (See Health Savings Accounts , later in this section. Income tax preparations ) Lodging on your business premises Exempt1 if furnished for your convenience as a condition of employment. Income tax preparations Meals Exempt if furnished on your business premises for your convenience. Income tax preparations Exempt if de minimis. Income tax preparations Moving expense reimbursements Exempt1 if expenses would be deductible if the employee had paid them. Income tax preparations No-additional-cost services Exempt3 Exempt3 Exempt3 Retirement planning services Exempt5 Exempt5 Exempt5 Transportation (commuting) benefits Exempt1 up to certain limits if for rides in a commuter highway vehicle and/or transit passes ($130), qualified parking ($250), or qualified bicycle commuting reimbursement6 ($20). Income tax preparations (See Transportation (Commuting) Benefits , later in this section. Income tax preparations ) Exempt if de minimis. Income tax preparations Tuition reduction Exempt3 if for undergraduate education (or graduate education if the employee performs teaching or research activities). Income tax preparations Working condition benefits Exempt Exempt Exempt 1 Exemption does not apply to S corporation employees who are 2% shareholders. Income tax preparations 2 Exemption does not apply to certain highly compensated employees under a self-insured plan that favors those employees. Income tax preparations 3 Exemption does not apply to certain highly compensated employees under a program that favors those employees. Income tax preparations 4 Exemption does not apply to certain key employees under a plan that favors those employees. Income tax preparations 5 Exemption does not apply to services for tax preparation, accounting, legal, or brokerage services. Income tax preparations 6 If the employee receives a qualified bicycle commuting reimbursement in a qualified bicycle commuting month, the employee cannot receive commuter highway vehicle, transit pass, or qualified parking benefits in that same month. Income tax preparations 7 You must include in your employee's wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. Income tax preparations Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Income tax preparations Also, show it in box 12 with code “C. Income tax preparations ” The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax. Income tax preparations Accident and Health Benefits This exclusion applies to contributions you make to an accident or health plan for an employee, including the following. Income tax preparations Contributions to the cost of accident or health insurance including qualified long-term care insurance. Income tax preparations Contributions to a separate trust or fund that directly or through insurance provides accident or health benefits. Income tax preparations Contributions to Archer MSAs or health savings accounts (discussed in Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans). Income tax preparations This exclusion also applies to payments you directly or indirectly make to an employee under an accident or health plan for employees that are either of the following. Income tax preparations Payments or reimbursements of medical expenses. Income tax preparations Payments for specific injuries or illnesses (such as the loss of the use of an arm or leg). Income tax preparations The payments must be figured without regard to any period of absence from work. Income tax preparations Accident or health plan. Income tax preparations   This is an arrangement that provides benefits for your employees, their spouses, their dependents, and their children (under age 27) in the event of personal injury or sickness. Income tax preparations The plan may be insured or noninsured and does not need to be in writing. Income tax preparations Employee. Income tax preparations   For this exclusion, treat the following individuals as employees. Income tax preparations A current common-law employee. Income tax preparations A full-time life insurance agent who is a current statutory employee. Income tax preparations A retired employee. Income tax preparations A former employee you maintain coverage for based on the employment relationship. Income tax preparations A widow or widower of an individual who died while an employee. Income tax preparations A widow or widower of a retired employee. Income tax preparations For the exclusion of contributions to an accident or health plan, a leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Income tax preparations Special rule for certain government plans. Income tax preparations   For certain government accident and health plans, payments to a deceased plan participant's beneficiary may qualify for the exclusion from gross income if the other requirements for exclusion are met. Income tax preparations See section 105(j) for details. Income tax preparations Exception for S corporation shareholders. Income tax preparations   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Income tax preparations A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Income tax preparations Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Income tax preparations Exclusion from wages. Income tax preparations   You can generally exclude the value of accident or health benefits you provide to an employee from the employee's wages. Income tax preparations Exception for certain long-term care benefits. Income tax preparations   You cannot exclude contributions to the cost of long-term care insurance from an employee's wages subject to federal income tax withholding if the coverage is provided through a flexible spending or similar arrangement. Income tax preparations This is a benefit program that reimburses specified expenses up to a maximum amount that is reasonably available to the employee and is less than five times the total cost of the insurance. Income tax preparations However, you can exclude these contributions from the employee's wages subject to social security, Medicare, and federal unemployment (FUTA) taxes. Income tax preparations S corporation shareholders. Income tax preparations   Because you cannot treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the value of accident or health benefits you provide to the employee in the employee's wages subject to federal income tax withholding. Income tax preparations However, you can exclude the value of these benefits (other than payments for specific injuries or illnesses) from the employee's wages subject to social security, Medicare, and FUTA taxes. Income tax preparations Exception for highly compensated employees. Income tax preparations   If your plan is a self-insured medical reimbursement plan that favors highly compensated employees, you must include all or part of the amounts you pay to these employees in their wages subject to federal income tax withholding. Income tax preparations However, you can exclude these amounts (other than payments for specific injuries or illnesses) from the employee's wages subject to social security, Medicare, and FUTA taxes. Income tax preparations   A self-insured plan is a plan that reimburses your employees for medical expenses not covered by an accident or health insurance policy. Income tax preparations   A highly compensated employee for this exception is any of the following individuals. Income tax preparations One of the five highest paid officers. Income tax preparations An employee who owns (directly or indirectly) more than 10% in value of the employer's stock. Income tax preparations An employee who is among the highest paid 25% of all employees (other than those who can be excluded from the plan). Income tax preparations   For more information on this exception, see section 105(h) of the Internal Revenue Code and its regulations. Income tax preparations COBRA premiums. Income tax preparations   The exclusion for accident and health benefits applies to amounts you pay to maintain medical coverage for a current or former employee under the Combined Omnibus Budget Reconciliation Act of 1986 (COBRA). Income tax preparations The exclusion applies regardless of the length of employment, whether you directly pay the premiums or reimburse the former employee for premiums paid, and whether the employee's separation is permanent or temporary. Income tax preparations Achievement Awards This exclusion applies to the value of any tangible personal property you give to an employee as an award for either length of service or safety achievement. Income tax preparations The exclusion does not apply to awards of cash, cash equivalents, gift certificates, or other intangible property such as vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, and other securities. Income tax preparations The award must meet the requirements for employee achievement awards discussed in chapter 2 of Publication 535, Business Expenses. Income tax preparations Employee. Income tax preparations   For this exclusion, treat the following individuals as employees. Income tax preparations A current employee. Income tax preparations A former common-law employee you maintain coverage for in consideration of or based on an agreement relating to prior service as an employee. Income tax preparations A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Income tax preparations Exception for S corporation shareholders. Income tax preparations   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Income tax preparations A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Income tax preparations Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Income tax preparations Exclusion from wages. Income tax preparations   You can generally exclude the value of achievement awards you give to an employee from the employee's wages if their cost is not more than the amount you can deduct as a business expense for the year. Income tax preparations The excludable annual amount is $1,600 ($400 for awards that are not “qualified plan awards”). Income tax preparations See chapter 2 of Publication 535 for more information about the limit on deductions for employee achievement awards. Income tax preparations    To determine for 2014 whether an achievement award is a “qualified plan award” under the deduction rules described in Publication 535, treat any employee who received more than $115,000 in pay for 2013 as a highly compensated employee. Income tax preparations   If the cost of awards given to an employee is more than your allowable deduction, include in the employee's wages the larger of the following amounts. Income tax preparations The part of the cost that is more than your allowable deduction (up to the value of the awards). Income tax preparations The amount by which the value of the awards exceeds your allowable deduction. Income tax preparations Exclude the remaining value of the awards from the employee's wages. Income tax preparations Adoption Assistance An adoption assistance program is a separate written plan of an employer that meets all of the following requirements. Income tax preparations It benefits employees who qualify under rules set up by you, which do not favor highly compensated employees or their dependents. Income tax preparations To determine whether your plan meets this test, do not consider employees excluded from your plan who are covered by a collective bargaining agreement, if there is evidence that adoption assistance was a subject of good-faith bargaining. Income tax preparations It does not pay more than 5% of its payments during the year for shareholders or owners (or their spouses or dependents). Income tax preparations A shareholder or owner is someone who owns (on any day of the year) more than 5% of the stock or of the capital or profits interest of your business. Income tax preparations You give reasonable notice of the plan to eligible employees. Income tax preparations Employees provide reasonable substantiation that payments or reimbursements are for qualifying expenses. Income tax preparations For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Income tax preparations The employee was a 5% owner at any time during the year or the preceding year. Income tax preparations The employee received more than $115,000 in pay for the preceding year. Income tax preparations You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Income tax preparations You must exclude all payments or reimbursements you make under an adoption assistance program for an employee's qualified adoption expenses from the employee's wages subject to federal income tax withholding. Income tax preparations However, you cannot exclude these payments from wages subject to social security, Medicare, and federal unemployment (FUTA) taxes. Income tax preparations For more information, see the Instructions for Form 8839, Qualified Adoption Expenses. Income tax preparations You must report all qualifying adoption expenses you paid or reimbursed under your adoption assistance program for each employee for the year in box 12 of the employee's Form W-2. Income tax preparations Use code “T” to identify this amount. Income tax preparations Exception for S corporation shareholders. Income tax preparations   For this exclusion, do not treat a 2% shareholder of an S corporation as an employee of the corporation. Income tax preparations A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Income tax preparations Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, including using the benefit as a reduction in distributions to the 2% shareholder. Income tax preparations Athletic Facilities You can exclude the value of an employee's use of an on-premises gym or other athletic facility you operate from an employee's wages if substantially all use of the facility during the calendar year is by your employees, their spouses, and their dependent children. Income tax preparations For this purpose, an employee's dependent child is a child or stepchild who is the employee's dependent or who, if both parents are deceased, has not attained the age of 25. Income tax preparations On-premises facility. Income tax preparations   The athletic facility must be located on premises you own or lease. Income tax preparations It does not have to be located on your business premises. Income tax preparations However, the exclusion does not apply to an athletic facility for residential use, such as athletic facilities that are part of a resort. Income tax preparations Employee. Income tax preparations   For this exclusion, treat the following individuals as employees. Income tax preparations A current employee. Income tax preparations A former employee who retired or left on disability. Income tax preparations A widow or widower of an individual who died while an employee. Income tax preparations A widow or widower of a former employee who retired or left on disability. Income tax preparations A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Income tax preparations A partner who performs services for a partnership. Income tax preparations De Minimis (Minimal) Benefits You can exclude the value of a de minimis benefit you provide to an employee from the employee's wages. Income tax preparations A de minimis benefit is any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable. Income tax preparations Cash and cash equivalent fringe benefits (for example, use of gift card, charge card, or credit card), no matter how little, are never excludable as a de minimis benefit, except for occasional meal money or transportation fare. Income tax preparations Examples of de minimis benefits include the following. Income tax preparations Personal use of an employer-provided cell phone provided primarily for noncompensatory business purposes. Income tax preparations See Employer-Provided Cell Phones , later in this section, for details. Income tax preparations Occasional personal use of a company copying machine if you sufficiently control its use so that at least 85% of its use is for business purposes. Income tax preparations Holiday gifts, other than cash, with a low fair market value. Income tax preparations Group-term life insurance payable on the death of an employee's spouse or dependent if the face amount is not more than $2,000. Income tax preparations Meals. Income tax preparations See Meals , later in this section, for details. Income tax preparations Occasional parties or picnics for employees and their guests. Income tax preparations Occasional tickets for theater or sporting events. Income tax preparations Transportation fare. Income tax preparations See Transportation (Commuting) Benefits , later in this section, for details. Income tax preparations Employee. Income tax preparations   For this exclusion, treat any recipient of a de minimis benefit as an employee. Income tax preparations Dependent Care Assistance This exclusion applies to household and dependent care services you directly or indirectly pay for or provide to an employee under a dependent care assistance program that covers only your employees. Income tax preparations The services must be for a qualifying person's care and must be provided to allow the employee to work. Income tax preparations These requirements are basically the same as the tests the employee would have to meet to claim the dependent care credit if the employee paid for the services. Income tax preparations For more information, see Qualifying Person Test and Work-Related Expense Test in Publication 503, Child and Dependent Care Expenses. Income tax preparations Employee. Income tax preparations   For this exclusion, treat the following individuals as employees. Income tax preparations A current employee. Income tax preparations A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Income tax preparations Yourself (if you are a sole proprietor). Income tax preparations A partner who performs services for a partnership. Income tax preparations Exclusion from wages. Income tax preparations   You can exclude the value of benefits you provide to an employee under a dependent care assistance program from the employee's wages if you reasonably believe that the employee can exclude the benefits from gross income. Income tax preparations   An employee can generally exclude from gross income up to $5,000 of benefits received under a dependent care assistance program each year. Income tax preparations This limit is reduced to $2,500 for married employees filing separate returns. Income tax preparations   However, the exclusion cannot be more than the smaller of the earned income of either the employee or employee's spouse. Income tax preparations Special rules apply to determine the earned income of a spouse who is either a student or not able to care for himself or herself. Income tax preparations For more information on the earned income limit, see Publication 503. Income tax preparations Exception for highly compensated employees. Income tax preparations   You cannot exclude dependent care assistance from the wages of a highly compensated employee unless the benefits provided under the program do not favor highly compensated employees and the program meets the requirements described in section 129(d) of the Internal Revenue Code. Income tax preparations   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Income tax preparations The employee was a 5% owner at any time during the year or the preceding year. Income tax preparations The employee received more than $115,000 in pay for the preceding year. Income tax preparations You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Income tax preparations Form W-2. Income tax preparations   Report the value of all dependent care assistance you provide to an employee under a dependent care assistance program in box 10 of the employee's Form W-2. Income tax preparations Include any amounts you cannot exclude from the employee's wages in boxes 1, 3, and 5. Income tax preparations Report both the nontaxable portion of assistance (up to $5,000) and any assistance above the amount that is non-taxable to the employee. Income tax preparations Example. Income tax preparations   Company A provides a dependent care assistance flexible spending arrangement to its employees through a cafeteria plan. Income tax preparations In addition, it provides occasional on-site dependent care to its employees at no cost. Income tax preparations Emily, an employee of company A, had $4,500 deducted from her pay for the dependent care flexible spending arrangement. Income tax preparations In addition, Emily used the on-site dependent care several times. Income tax preparations The fair market value of the on-site care was $700. Income tax preparations Emily's Form W-2 should report $5,200 of dependent care assistance in box 10 ($4,500 flexible spending arrangement plus $700 on-site dependent care). Income tax preparations Boxes 1, 3, and 5 should include $200 (the amount in excess of the nontaxable assistance), and applicable taxes should be withheld on that amount. Income tax preparations Educational Assistance This exclusion applies to educational assistance you provide to employees under an educational assistance program. Income tax preparations The exclusion also applies to graduate level courses. Income tax preparations Educational assistance means amounts you pay or incur for your employees' education expenses. Income tax preparations These expenses generally include the cost of books, equipment, fees, supplies, and tuition. Income tax preparations However, these expenses do not include the cost of a course or other education involving sports, games, or hobbies, unless the education: Has a reasonable relationship to your business, or Is required as part of a degree program. Income tax preparations Education expenses do not include the cost of tools or supplies (other than textbooks) your employee is allowed to keep at the end of the course. Income tax preparations Nor do they include the cost of lodging, meals, or transportation. Income tax preparations Educational assistance program. Income tax preparations   An educational assistance program is a separate written plan that provides educational assistance only to your employees. Income tax preparations The program qualifies only if all of the following tests are met. Income tax preparations The program benefits employees who qualify under rules set up by you that do not favor highly compensated employees. Income tax preparations To determine whether your program meets this test, do not consider employees excluded from your program who are covered by a collective bargaining agreement if there is evidence that educational assistance was a subject of good-faith bargaining. Income tax preparations The program does not provide more than 5% of its benefits during the year for shareholders or owners. Income tax preparations A shareholder or owner is someone who owns (on any day of the year) more than 5% of the stock or of the capital or profits interest of your business. Income tax preparations The program does not allow employees to choose to receive cash or other benefits that must be included in gross income instead of educational assistance. Income tax preparations You give reasonable notice of the program to eligible employees. Income tax preparations Your program can cover former employees if their employment is the reason for the coverage. Income tax preparations   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Income tax preparations The employee was a 5% owner at any time during the year or the preceding year. Income tax preparations The employee received more than $115,000 in pay for the preceding year. Income tax preparations You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Income tax preparations Employee. Income tax preparations   For this exclusion, treat the following individuals as employees. Income tax preparations A current employee. Income tax preparations A former employee who retired, left on disability, or was laid off. Income tax preparations A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Income tax preparations Yourself (if you are a sole proprietor). Income tax preparations A partner who performs services for a partnership. Income tax preparations Exclusion from wages. Income tax preparations   You can exclude up to $5,250 of educational assistance you provide to an employee under an educational assistance program from the employee's wages each year. Income tax preparations Assistance over $5,250. Income tax preparations   If you do not have an educational assistance plan, or you provide an employee with assistance exceeding $5,250, you must include the value of these benefits as wages, unless the benefits are working condition benefits. Income tax preparations Working condition benefits may be excluded from wages. Income tax preparations Property or a service provided is a working condition benefit to the extent that if the employee paid for it, the amount paid would have been deductible as a business or depreciation expense. Income tax preparations See Working Condition Benefits , later, in this section. Income tax preparations Employee Discounts This exclusion applies to a price reduction you give an employee on property or services you offer to customers in the ordinary course of the line of business in which the employee performs substantial services. Income tax preparations However, it does not apply to discounts on real property or discounts on personal property of a kind commonly held for investment (such as stocks or bonds). Income tax preparations Employee. Income tax preparations   For this exclusion, treat the following individuals as employees. Income tax preparations A current employee. Income tax preparations A former employee who retired or left on disability. Income tax preparations A widow or widower of an individual who died while an employee. Income tax preparations A widow or widower of an employee who retired or left on disability. Income tax preparations A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Income tax preparations A partner who performs services for a partnership. Income tax preparations Exclusion from wages. Income tax preparations   You can generally exclude the value of an employee discount you provide an employee from the employee's wages, up to the following limits. Income tax preparations For a discount on services, 20% of the price you charge nonemployee customers for the service. Income tax preparations For a discount on merchandise or other property, your gross profit percentage times the price you charge nonemployee customers for the property. Income tax preparations   Determine your gross profit percentage in the line of business based on all property you offer to customers (including employee customers) and your experience during the tax year immediately before the tax year in which the discount is available. Income tax preparations To figure your gross profit percentage, subtract the total cost of the property from the total sales price of the property and divide the result by the total sales price of the property. Income tax preparations Exception for highly compensated employees. Income tax preparations   You cannot exclude from the wages of a highly compensated employee any part of the value of a discount that is not available on the same terms to one of the following groups. Income tax preparations All of your employees. Income tax preparations A group of employees defined under a reasonable classification you set up that does not favor highly compensated employees. Income tax preparations   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Income tax preparations The employee was a 5% owner at any time during the year or the preceding year. Income tax preparations The employee received more than $115,000 in pay for the preceding year. Income tax preparations You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Income tax preparations Employee Stock Options There are three kinds of stock options—incentive stock options, employee stock purchase plan options, and nonstatutory (nonqualified) stock options. Income tax preparations Wages for social security, Medicare, and federal unemployment (FUTA) taxes do not include remuneration resulting from the exercise, after October 22, 2004, of an incentive stock option or under an employee stock purchase plan option, or from any disposition of stock acquired by exercising such an option. Income tax preparations The IRS will not apply these taxes to an exercise before October 23, 2004, of an incentive stock option or an employee stock purchase plan option or to a disposition of stock acquired by such exercise. Income tax preparations Additionally, federal income tax withholding is not required on the income resulting from a disqualifying disposition of stock acquired by the exercise after October 22, 2004, of an incentive stock option or under an employee stock purchase plan option, or on income equal to the discount portion of stock acquired by the exercise, after October 22, 2004, of an employee stock purchase plan option resulting from any disposition of the stock. Income tax preparations The IRS will not apply federal income tax withholding upon the disposition of stock acquired by the exercise, before October 23, 2004, of an incentive stock option or an employee stock purchase plan option. Income tax preparations However, the employer must report as income in box 1 of Form W-2, (a) the discount portion of stock acquired by the exercise of an employee stock purchase plan option upon disposition of the stock, and (b) the spread (between the exercise price and the fair market value of the stock at the time of exercise) upon a disqualifying disposition of stock acquired by the exercise of an incentive stock option or an employee stock purchase plan option. Income tax preparations An employer must report the excess of the fair market value of stock received upon exercise of a nonstatutory stock option over the amount paid for the stock option on Form W-2 in boxes 1, 3 (up to the social security wage base), 5, and in box 12 using the code “V. Income tax preparations ” See Regulations section 1. Income tax preparations 83-7. Income tax preparations An employee who transfers his or her interest in nonstatutory stock options to the employee's former spouse incident to a divorce is not required to include an amount in gross income upon the transfer. Income tax preparations The former spouse, rather than the employee, is required to include an amount in gross income when the former spouse exercises the stock options. Income tax preparations See Revenue Ruling 2002-22 and Revenue Ruling 2004-60 for details. Income tax preparations You can find Revenue Ruling 2002-22 on page 849 of Internal Revenue Bulletin 2002-19 at www. Income tax preparations irs. Income tax preparations gov/pub/irs-irbs/irb02-19. Income tax preparations pdf. Income tax preparations See Revenue Ruling 2004-60, 2004-24 I. Income tax preparations R. Income tax preparations B. Income tax preparations 1051, available at www. Income tax preparations irs. Income tax preparations gov/irb/2004-24_IRB/ar13. Income tax preparations html. Income tax preparations For more information about employee stock options, see sections 421, 422, and 423 of the Internal Revenue Code and their related regulations. Income tax preparations Employer-Provided Cell Phones The value of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a working condition fringe benefit. Income tax preparations Personal use of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a de minimis fringe benefit. Income tax preparations For the rules relating to these types of benefits, see De Minimis (Minimal) Benefits , earlier in this section, and Working Condition Benefits , later in this section. Income tax preparations Noncompensatory business purposes. Income tax preparations   You provide a cell phone primarily for noncompensatory business purposes if there are substantial business reasons for providing the cell phone. Income tax preparations Examples of substantial business reasons include the employer's: Need to contact the employee at all times for work-related emergencies, Requirement that the employee be available to speak with clients at times when the employee is away from the office, and Need to speak with clients located in other time zones at times outside the employee's normal workday. Income tax preparations Cell phones provided to promote goodwill, boost morale, or attract prospective employees. Income tax preparations   You cannot exclude from an employee's wages the value of a cell phone provided to promote goodwill of an employee, to attract a prospective employee, or as a means of providing additional compensation to an employee. Income tax preparations Additional information. Income tax preparations   For additional information on the tax treatment of employer-provided cell phones, see Notice 2011-72, 2011-38 I. Income tax preparations R. Income tax preparations B. Income tax preparations 407, available at  www. Income tax preparations irs. Income tax preparations gov/irb/2011-38_IRB/ar07. Income tax preparations html. Income tax preparations Group-Term Life Insurance Coverage This exclusion applies to life insurance coverage that meets all the following conditions. Income tax preparations It provides a general death benefit that is not included in income. Income tax preparations You provide it to a group of employees. Income tax preparations See The 10-employee rule , later. Income tax preparations It provides an amount of insurance to each employee based on a formula that prevents individual selection. Income tax preparations This formula must use factors such as the employee's age, years of service, pay, or position. Income tax preparations You provide it under a policy you directly or indirectly carry. Income tax preparations Even if you do not pay any of the policy's cost, you are considered to carry it if you arrange for payment of its cost by your employees and charge at least one employee less than, and at least one other employee more than, the cost of his or her insurance. Income tax preparations Determine the cost of the insurance, for this purpose, as explained under Coverage over the limit , later. Income tax preparations Group-term life insurance does not include the following insurance. Income tax preparations Insurance that does not provide general death benefits, such as travel insurance or a policy providing only accidental death benefits. Income tax preparations Life insurance on the life of your employee's spouse or dependent. Income tax preparations However, you may be able to exclude the cost of this insurance from the employee's wages as a de minimis benefit. Income tax preparations See De Minimis (Minimal) Benefits , earlier in this section. Income tax preparations Insurance provided under a policy that provides a permanent benefit (an economic value that extends beyond 1 policy year, such as paid-up or cash surrender value), unless certain requirements are met. Income tax preparations See Regulations section 1. Income tax preparations 79-1 for details. Income tax preparations Employee. Income tax preparations   For this exclusion, treat the following individuals as employees. Income tax preparations A current common-law employee. Income tax preparations A full-time life insurance agent who is a current statutory employee. Income tax preparations An individual who was formerly your employee under (1) or (2). Income tax preparations A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction and control. Income tax preparations Exception for S corporation shareholders. Income tax preparations   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Income tax preparations A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Income tax preparations Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Income tax preparations The 10-employee rule. Income tax preparations   Generally, life insurance is not group-term life insurance unless you provide it to at least 10 full-time employees at some time during the year. Income tax preparations   For this rule, count employees who choose not to receive the insurance unless, to receive it, they must contribute to the cost of benefits other than the group-term life insurance. Income tax preparations For example, count an employee who could receive insurance by paying part of the cost, even if that employee chooses not to receive it. Income tax preparations However, do not count an employee who must pay part or all of the cost of permanent benefits to get insurance, unless that employee chooses to receive it. Income tax preparations A permanent benefit is an economic value extending beyond one policy year (for example, a paid-up or cash-surrender value) that is provided under a life insurance policy. Income tax preparations Exceptions. Income tax preparations   Even if you do not meet the 10-employee rule, two exceptions allow you to treat insurance as group-term life insurance. Income tax preparations   Under the first exception, you do not have to meet the 10-employee rule if all the following conditions are met. Income tax preparations If evidence that the employee is insurable is required, it is limited to a medical questionnaire (completed by the employee) that does not require a physical. Income tax preparations You provide the insurance to all your full-time employees or, if the insurer requires the evidence mentioned in (1), to all full-time employees who provide evidence the insurer accepts. Income tax preparations You figure the coverage based on either a uniform percentage of pay or the insurer's coverage brackets that meet certain requirements. Income tax preparations See Regulations section 1. Income tax preparations 79-1 for details. Income tax preparations   Under the second exception, you do not have to meet the 10-employee rule if all the following conditions are met. Income tax preparations You provide the insurance under a common plan covering your employees and the employees of at least one other employer who is not related to you. Income tax preparations The insurance is restricted to, but mandatory for, all your employees who belong to, or are represented by, an organization (such as a union) that carries on substantial activities besides obtaining insurance. Income tax preparations Evidence of whether an employee is insurable does not affect an employee's eligibility for insurance or the amount of insurance that employee gets. Income tax preparations   To apply either exception, do not consider employees who were denied insurance for any of the following reasons. Income tax preparations They were 65 or older. Income tax preparations They customarily work 20 hours or less a week or 5 months or less in a calendar year. Income tax preparations They have not been employed for the waiting period given in the policy. Income tax preparations This waiting period cannot be more than 6 months. Income tax preparations Exclusion from wages. Income tax preparations   You can generally exclude the cost of up to $50,000 of group-term life insurance from the wages of an insured employee. Income tax preparations You can exclude the same amount from the employee's wages when figuring social security and Medicare taxes. Income tax preparations In addition, you do not have to withhold federal income tax or pay FUTA tax on any group-term life insurance you provide to an employee. Income tax preparations Coverage over the limit. Income tax preparations   You must include in your employee's wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. Income tax preparations Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Income tax preparations Also, show it in box 12 with code “C. Income tax preparations ” The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax. Income tax preparations   Figure the monthly cost of the insurance to include in the employee's wages by multiplying the number of thousands of dollars of all insurance coverage over $50,000 (figured to the nearest $100) by the cost shown in Table 2-2. Income tax preparations For all coverage provided within the calendar year, use the employee's age on the last day of the employee's tax year. Income tax preparations You must prorate the cost from the table if less than a full month of coverage is involved. Income tax preparations Table 2-2. Income tax preparations Cost Per $1,000 of Protection For 1 Month Age Cost Under 25 $ . Income tax preparations 05 25 through 29 . Income tax preparations 06 30 through 34 . Income tax preparations 08 35 through 39 . Income tax preparations 09 40 through 44 . Income tax preparations 10 45 through 49 . Income tax preparations 15 50 through 54 . Income tax preparations 23 55 through 59 . Income tax preparations 43 60 through 64 . Income tax preparations 66 65 through 69 1. Income tax preparations 27 70 and older 2. Income tax preparations 06 You figure the total cost to include in the employee's wages by multiplying the monthly cost by the number of full months' coverage at that cost. Income tax preparations Example. Income tax preparations Tom's employer provides him with group-term life insurance coverage of $200,000. Income tax preparations Tom is 45 years old, is not a key employee, and pays $100 per year toward the cost of the insurance. Income tax preparations Tom's employer must include $170 in his wages. Income tax preparations The $200,000 of insurance coverage is reduced by $50,000. Income tax preparations The yearly cost of $150,000 of coverage is $270 ($. Income tax preparations 15 x 150 x 12), and is reduced by the $100 Tom pays for the insurance. Income tax preparations The employer includes $170 in boxes 1, 3, and 5 of Tom's Form W-2. Income tax preparations The employer also enters $170 in box 12 with code “C. Income tax preparations ” Coverage for dependents. Income tax preparations   Group-term life insurance coverage paid by the employer for the spouse or dependents of an employee may be excludable from income as a de minimis fringe benefit if the face amount is not more than $2,000. Income tax preparations If the face amount is greater than $2,000, the entire cost of the dependent coverage must be included in income unless the amount over $2,000 is purchased with employee contributions on an after-tax basis. Income tax preparations The cost of the insurance is determined by using Table 2-2. Income tax preparations Former employees. Income tax preparations   When group-term life insurance over $50,000 is provided to an employee (including retirees) after his or her termination, the employee share of social security and Medicare taxes on that period of coverage is paid by the former employee with his or her tax return and is not collected by the employer. Income tax preparations You are not required to collect those taxes. Income tax preparations Use the table above to determine the amount of social security and Medicare taxes owed by the former employee for coverage provided after separation from service. Income tax preparations Report those uncollected amounts separately in box 12 of Form W-2 using codes “M” and “N. Income tax preparations ” See the General Instructions for Forms W-2 and W-3 and the Instructions for Form 941. Income tax preparations Exception for key employees. Income tax preparations   Generally, if your group-term life insurance plan favors key employees as to participation or benefits, you must include the entire cost of the insurance in your key employees' wages. Income tax preparations This exception generally does not apply to church plans. Income tax preparations When figuring social security and Medicare taxes, you must also include the entire cost in the employees' wages. Income tax preparations Include the cost in boxes 1, 3, and 5 of Form W-2. Income tax preparations However, you do not have to withhold federal income tax or pay FUTA tax on the cost of any group-term life insurance you provide to an employee. Income tax preparations   For this purpose, the cost of the insurance is the greater of the following amounts. Income tax preparations The premiums you pay for the employee's insurance. Income tax preparations See Regulations section 1. Income tax preparations 79-4T(Q&A 6) for more information. Income tax preparations The cost you figure using Table 2-2. Income tax preparations   For this exclusion, a key employee during 2014 is an employee or former employee who is one of the following individuals. Income tax preparations See section 416(i) of the Internal Revenue Code for more information. Income tax preparations An officer having annual pay of more than $170,000. Income tax preparations An individual who for 2014 was either of the following. Income tax preparations A 5% owner of your business. Income tax preparations A 1% owner of your business whose annual pay was more than $150,000. Income tax preparations   A former employee who was a key employee upon retirement or separation from service is also a key employee. Income tax preparations   Your plan does not favor key employees as to participation if at least one of the following is true. Income tax preparations It benefits at least 70% of your employees. Income tax preparations At least 85% of the participating employees are not key employees. Income tax preparations It benefits employees who qualify under a set of rules you set up that do not favor key employees. Income tax preparations   Your plan meets this participation test if it is part of a cafeteria plan (discussed in section 1) and it meets the participation test for those plans. Income tax preparations   When applying this test, do not consider employees who: Have not completed 3 years of service, Are part-time or seasonal, Are nonresident aliens who receive no U. Income tax preparations S. Income tax preparations source earned income from you, or Are not included in the plan but are in a unit of employees covered by a collective bargaining agreement, if the benefits provided under the plan were the subject of good-faith bargaining between you and employee representatives. Income tax preparations   Your plan does not favor key employees as to benefits if all benefits available to participating key employees are also available to all other participating employees. Income tax preparations Your plan does not favor key employees just because the amount of insurance you provide to your employees is uniformly related to their pay. Income tax preparations S corporation shareholders. Income tax preparations   Because you cannot treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the cost of all group-term life insurance coverage you provide the 2% shareholder in his or her wages. Income tax preparations When figuring social security and Medicare taxes, you must also include the cost of this coverage in the 2% shareholder's wages. Income tax preparations Include the cost in boxes 1, 3, and 5 of Form W-2. Income tax preparations However, you do not have to withhold federal income tax or pay federal unemployment tax on the cost of any group-term life insurance coverage you provide to the 2% shareholder. Income tax preparations Health Savings Accounts A Health Savings Account (HSA) is an account owned by a qualified individual who is generally your employee or former employee. Income tax preparations Any contributions that you make to an HSA become the employee's property and cannot be withdrawn by you. Income tax preparations Contributions to the account are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. Income tax preparations The medical expenses must not be reimbursable by insurance or other sources and their payment from HSA funds (distribution) will not give rise to a medical expense deduction on the individual's federal income tax return. Income tax preparations For more information about HSAs, visit the Department of Treasury's website at www. Income tax preparations treasury. Income tax preparations gov and enter “HSA” in the search box. Income tax preparations Eligibility. Income tax preparations   A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance except for permitted insurance listed under section 223(c)(3) or insurance for accidents, disability, dental care, vision care, or long-term care. Income tax preparations For calendar year 2014, a qualifying HDHP must have a deductible of at least $1,250 for self-only coverage or $2,500 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $6,350 for self-only coverage and $12,700 for family coverage. Income tax preparations   There are no income limits that restrict an individual's eligibility to contribute to an HSA nor is there a requirement that the account owner have earned income to make a contribution. Income tax preparations Exceptions. Income tax preparations   An individual is not a qualified individual if he or she can be claimed as a dependent on another person's tax return. Income tax preparations Also, an employee's participation in a health flexible spending arrangement (FSA) or health reimbursement arrangement (HRA) generally disqualifies the individual (and employer) from making contributions to his or her HSA. Income tax preparations However, an individual may qualify to participate in an HSA if he or she is participating in only a limited-purpose FSA or HRA or a post-deductible FSA. Income tax preparations For more information, see Other employee health plans in Publication 969. Income tax preparations Employer contributions. Income tax preparations   Up to specified dollar limits, cash contributions to the HSA of a qualified individual (determined monthly) are exempt from federal income tax withholding, social security tax, Medicare tax, and FUTA tax. Income tax preparations For 2014, you can contribute up to $3,300 for self-only coverage or $6,550 for family coverage to a qualified individual's HSA. Income tax preparations   The contribution amounts listed above are increased by $1,000 for a qualified individual who is age 55 or older at any time during the year. Income tax preparations For two qualified individuals who are married to each other and who each are age 55 or older at any time during the year, each spouse's contribution limit is increased by $1,000 provided each spouse has a separate HSA. Income tax preparations No contributions can be made to an individual's HSA after he or she becomes enrolled in Medicare Part A or Part B. Income tax preparations Nondiscrimination rules. Income tax preparations    Your contribution amount to an employee's HSA must be comparable for all employees who have comparable coverage during the same period. Income tax preparations Otherwise, there will be an excise tax equal to 35% of the amount you contributed to all employees' HSAs. Income tax preparations   For guidance on employer comparable contributions to HSAs under section 4980G in instances where an employee has not established an HSA by December 31 and in instances where an employer accelerates contributions for the calendar year for employees who have incurred qualified medical expenses, see Regulations section 54. Income tax preparations 4980G-4. Income tax preparations Exception. Income tax preparations   The Tax Relief and Health Care Act of 2006 allows employers to make larger HSA contributions for a nonhighly compensated employee than for a highly compensated employee. Income tax preparations A highly compensated employee for 2014 is an employee who meets either of the following tests. Income tax preparations The employee was a 5% owner at any time during the year or the preceding year. Income tax preparations The employee received more than $115,000 in pay for the preceding year. Income tax preparations You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Income tax preparations Partnerships and S corporations. Income tax preparations   Partners and 2% shareholders of an S corporation are not eligible for salary reduction (pre-tax) contributions to an HSA. Income tax preparations Employer contributions to the HSA of a bona fide partner or 2% shareholder are treated as distributions or guaranteed payments as determined by the facts and circumstances. Income tax preparations Cafeteria plans. Income tax preparations   You may contribute to an employee's HSA using a cafeteria plan and your contributions are not subject to the statutory comparability rules. Income tax preparations However, cafeteria plan nondiscrimination rules still apply. Income tax preparations For example, contributions under a cafeteria plan to employee HSAs cannot be greater for higher-paid employees than they are for lower-paid employees. Income tax preparations Contributions that favor lower-paid employees are not prohibited. Income tax preparations Reporting requirements. Income tax preparations   You must report your contributions to an employee's HSA in box 12 of Form W-2 using code “W. Income tax preparations ” The trustee or custodian of the HSA, generally a bank or insurance company, reports distributions from the HSA using Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA. Income tax preparations Lodging on Your Business Premises You can exclude the value of lodging you furnish to an employee from the employee's wages if it meets the following tests. Income tax preparations It is furnished on your business premises. Income tax preparations It is furnished for your convenience. Income tax preparations The employee must accept it as a condition of employment. Income tax preparations Different tests may apply to lodging furnished by educational institutions. Income tax preparations See section 119(d) of the Internal Revenue Code for details. Income tax preparations The exclusion does not apply if you allow your employee to choose to receive additional pay instead of lodging. Income tax preparations On your business premises. Income tax preparations   For this exclusion, your business premises is generally your employee's place of work. Income tax preparations For special rules that apply to lodging furnished in a camp located in a foreign country, see section 119(c) of the Internal Revenue Code and its regulations. Income tax preparations For your convenience. Income tax preparations   Whether or not you furnish lodging for your convenience as an employer depends on all the facts and circumstances. Income tax preparations You furnish the lodging to your employee for your convenience if you do this for a substantial business reason other than to provide the employee with additional pay. Income tax preparations This is true even if a law or an employment contract provides that the lodging is furnished as pay. Income tax preparations However, a written statement that the lodging is furnished for your convenience is not sufficient. Income tax preparations Condition of employment. Income tax preparations   Lodging meets this test if you require your employees to accept the lodging because they need to live on your business premises to be able to properly perform their duties. Income tax preparations Examples include employees who must be available at all times and employees who could not perform their required duties without being furnished the lodging. Income tax preparations   It does not matter whether you must furnish the lodging as pay under the terms of an employment contract or a law fixing the terms of employment. Income tax preparations Example. Income tax preparations A hospital gives Joan, an employee of the hospital, the choice of living at the hospital free of charge or living elsewhere and receiving a cash allowance in addition to her regular salary. Income tax preparations If Joan chooses to live at the hospital, the hospital cannot exclude the value of the lodging from her wages because she is not required to live at the hospital to properly perform the duties of her employment. Income tax preparations S corporation shareholders. Income tax preparations   For this exclusion, do not treat a 2% shareholder of an S corporation as an employee of the corporation. Income tax preparations A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Income tax preparations Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Income tax preparations Meals This section discusses the exclusion rules that apply to de minimis meals and meals on your business premises. Income tax preparations De Minimis Meals You can exclude any occasional meal or meal money you provide to an employee if it has so little value (taking into account how frequently you provide meals to your employees) that accounting for it would be unreasonable or administratively impracticable. Income tax preparations The exclusion applies, for example, to the following items. Income tax preparations Coffee, doughnuts, or soft drinks. Income tax preparations Occasional meals or meal money provided to enable an employee to work overtime. Income tax preparations However, the exclusion does not apply to meal money figured on the basis of hours worked. Income tax preparations Occasional parties or picnics for employees and their guests. Income tax preparations This exclusion also applies to meals you provide at an employer-operated eating facility for employees if the annual revenue from the facility equals or exceeds the direct costs of the facility. Income tax preparations For this purpose, your revenue from providing a meal is considered equal to the facility's direct operating costs to provide that meal if its value can be excluded from an employee's wages as explained under Meals on Your Business Premises , later. Income tax preparations If food or beverages you furnish to employees qualify as a de minimis benefit, you can deduct their full cost. Income tax preparations The 50% limit on deductions for the cost of meals does not apply. Income tax preparations The deduction limit on meals is discussed in chapter 2 of Publication 535. Income tax preparations Employee. Income tax preparations   For this exclusion, treat any recipient of a de minimis meal as