Docstoc

Authority

Document Sample
Authority Powered By Docstoc
					       NORTH CAROLINA AGRICULTURAL AND
          TECHNICAL STATE UNIVERSITY
            DIVISION OF BUSINESS AND FINANCE
               OFFICE OF THE COMPTROLLER
                UNIVERSITY PAYROLL OFFICE
            Fringe Benefits Taxability, Payroll Reporting
         (Non-Salary Compensation, Awards, Prizes, Gifts)
Additional References: Internal Revenue Code § 132.

Related Policies: Awarding a Prize, Retirement Gift, Teaching Award
                  Non-Salary and Deferred Compensation Policy, rev. January 9, 2008


I.     POLICY STATEMENT

Certain benefits provided to employees (such as non-salary compensation, awards, prizes,
or gifts) may be subject to taxation. An employee benefit is any property, service, or cash
compensation provided to an employee in direct or indirect connection with the
performance of service for North Carolina Agricultural and Technical State University
(“NC A&T” or “University”) and in lieu of or in addition to regular wages.

Taxable employee benefits are governed by the Internal Revenue Code. Some benefits
qualify for exclusion from the employee‟s taxable income. Some benefits can be either
taxable or non-taxable income, depending upon the use of the benefit. Generally, any
personal use of an employer-provided benefit is subject to taxation.

This policy establishes the criteria used to determine the taxability of these benefits,
including complimentary University event tickets, given to any University employee for
personal use. The intent of this policy is to ensure that these benefits are properly
accounted for and any required taxes are recorded and withheld. This policy is in
accordance with Internal Revenue Service regulations relating to fringe benefits.

II.    TAXABILITY OF CASH AND NON-CASH GIFTS

       A.     Cash Gifts
              Cash gifts, prizes and awards given to employees that are paid with
              University funds (including but not limited to state funds, grant funds,
              contract funds, and gift funds) constitute gross wages subject to federal and
     state income and FICA taxation. Cash and cash equivalent fringe benefits
     (e.g., use of gift card or certificate, charge card or credit card), no matter
     how little, are never excludable as fringe benefits, except for occasional
     meal money or transportation fare.

B.   Non-Cash Gifts
     Non-cash gifts, prizes and awards given to employees are subject to federal
     and state income and FICA taxation, unless these items of recognition
     qualify as one of the following:

     1.      ‘De minimis’ Fringe Benefits
     The University may reward an employee‟s noteworthy, work-related
     accomplishments by presenting items of tangible personal property without
     tax consequences provided the value of the items, in addition to other gifts,
     prizes or awards presented throughout the calendar year to the employee, do
     not exceed $40. The rationale is that these items of recognition constitute
     „de minimis‟ fringe benefits that are considered so small that accounting for
     them would be unreasonable or administratively impracticable.

     Examples of „de minimis‟ fringe benefits include, but are not limited to, the
     following:

     ▪      A holiday gift, other than cash, with a low fair market value; and,
     ▪      An occasional ticket for an entertainment or sporting event.

     2.      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. The exclusion does not apply to awards of cash, cash
     equivalents, or other tangible property such as vacations, meals, lodging,
     tickets to theater or sporting events, stocks, bonds, and other securities. The
     award must meet the requirements for employee achievement awards,
     discussed below.

            a.     Length of Service Awards
            Length of Service awards may qualify as a non-taxable benefit,
            provided:

            ▪       the employee has at least five years of service to the
                    University;
            ▪       the employee has not received a length of service award
                    within the last five years;
            ▪       the awards are limited to $400 per employee per year;
            ▪       the awards are presented as part of a meaningful
                    presentation; and
                      ▪      the awards are made under conditions and circumstances that
                             do not create a significant likelihood of disguised pay.

                      Should an employee receive a length of service award that exceeds
                      $400, the excess amount shall be reported to University Payroll and
                      included as taxable wages on the employee‟s Form W-2.

                      b.     Safety Achievement Awards
                      Safety Achievement awards that recognize an employee‟s
                      accomplishments for maintaining or promoting defined safety
                      standards may qualify for exclusion from taxation, provided:

                      ▪      the awards are limited annually to less than 10% of total
                             employees;
                      ▪      the awards are not presented to managers, administrators,
                             clerical and professional employees;
                      ▪      the awards are limited to $400 per employee per year;
                      ▪      the awards are presented as part of a meaningful
                             presentation;
                      ▪      the awards are made under conditions and circumstances that
                             do not create a significant likelihood of disguised pay.

                      Should an employee receive safety achievement awards that exceed
                      $400 during the calendar year, the excess amount shall be reported
                      to University Payroll and included as taxable wages on the
                      employee‟s Form W-2.

III.   OCCASIONAL ENTERTAINMENT OR SPORTING EVENT TICKETS

As stated above, the occasional issuance of an entertainment or sporting event ticket to an
employee for personal use is not taxable, as long as the ticket is of „de minimis‟ value.

IV.    SEASON TICKETS

Season tickets for events, including sporting or theater events, issued to an employee for
personal use shall be reported to University Payroll and included as taxable wages on the
employee‟s Form W-2.

V.     OTHER EXCLUSIONS

In addition to „de minimis‟ fringe benefits, discussed above, Internal Revenue Code § 132
provides exclusions for three additional broad categories of commonly provided fringe
benefits:

Working condition fringe benefits: Property or services provided to employees to be
used in the conduct of their job. Adequate records must be maintained to substantiate the
business use of the property or services. Business use of University provided vehicles,
telephones, or safety clothing are examples of a working condition fringe benefit.

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 services. 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). The maximum qualified employee discount is 20% of the price at
which the services or products are offered to the general public.

No-additional-cost services: The University must incur no substantial additional expense
in making the service available to all employees. For example, NC A&T can offer non-
instructional services to students, employees (tax-free) and the general public such as
musicals, art shows, or other cultural events.

VI.    VALUATION

The general rule for valuation is fair market value, which would be the amount that the
employee would have to pay a third party in an arm‟s length transaction to buy or lease the
particular benefit.

Special rules exist for automobiles; the University generally uses the IRS Lease Valuation
model. For required safety clothing, the NC Office of State Budget specifies a maximum
$75 annual allowance. Employees receiving University provided cellular telephones or
similar mobile communications devices (but not an MCD allowance) must document the
business purpose of each call and reimburse the University for any personal calls made, per
current IRS regulations.

VII.   PROCESSING AND REPORTING GUIDELINES

Contact the University‟s Division of Business and Finance (Comptroller‟s Office/Payroll)
for processing and reporting guidelines.

				
DOCUMENT INFO