w-2’s & other tax reporting

W-2’s & Other Tax Reporting

John M. Lauer, MST

State & Local Government Tax Specialist

Internal Revenue Service

Overview of Topics

• Accountable Plans• Medicare Premiums Paid• Group Term Life Insurance• Tuition Reimbursement over $5,250• iPads or other gifts• Roth 403(b) plans• Death of an Employee

Accountable Plans

• What is an Accountable Plan? - An allowance or reimbursement policy under

which amounts are nontaxable to the recipient if three requirements are met.

1. Business Connection2. Adequate accounting w/in reasonable time3. Excess amounts returned w/in reasonable

time

Accountable Plans

Business Connection

• Expense incurred in connection with services of an employee

• Would otherwise be deductible on personal 1040 if Employer did not reimburse (Treas. Reg. 1.62-2(d)

Accountable Plans

Adequate Accounting

• Date, time, place, amount, and business purpose

• Receipts required unless under per diem plan [Treas. Reg. 1.274-5T(b)(2)]

• Documentary Evidence

Accountable Plans

Timely Return of Excess

• Must meet test of timeliness - Fixed Date Method - Periodic Statement Method - Other Reasonable Method

Medicare B Premiums

• IRC 106 • Exclusion from gross income • Employer-provided insurance coverage• Must be under accountable plan

Medicare B Premiums

• A school district reimburses the cost of Medicare B Premiums for retirees. Is this a taxable event?

ANSWER: It depends on the facts & circumstances.

• Accountable plan v. Non Accountable Plans• Acctble = tax free , Non-Acctble = taxable

Group Term Life Insurance

• IRC 79• First $50,000 excluded from taxable income• Carried directly or indirectly• See tables in Treas. Reg. 1.79-3(d)• Subject to Social Security & Medicare

withholding only (No FITW)

Group Term Life continued

• Carried Directly or Indirectly by an Employer: - Employer pays any cost of the insurance - Employer arranges for premium payments and

premiums paid by at least one employee subsidize those paid by at least one other employee (“straddle rule”)

• Benefit provided through redistributing rule


• Does this apply even if the employees are paying the full cost of coverage?

• ANSWER: YES, a benefit is still being provided. However, the employee would reduce the taxable benefit by the amount paid through the year.


• What if the employer does not pay any part of the premium and they do not use redistributing of premium costs? Is there still a taxable event?

• ANSWER: NO, the employees are paying their full amount and none of the employees’ premiums are being subsidized by others


• If more than 1 insurer, then all policies must be analyzed separately

• Coverage for spouse or dependents• $2,000 threshold, face amount of coverage• De Minimus• Use same tables and computation if the

$2,000 is exceeded


• If part of my spouses coverage is determined to be taxable, do I exclude the $2,000 threshold?

• ANSWER: NO, The entire value is used in computing the taxable fringe benefit. Do not reduce it by the $2,000 threshold


• COMPUTATION EXAMPLE:• John – 58 yrs old, still an employee

participating in the plan, receives $150,000 of coverage for the full year

• Step 1 – determine excess ($150k - $50k = $100k in excess)

• Step 2 – refer to tables in Treas. Reg. 1.79-3(d) to determine cost per $1,000 per month

Table under Treas. Reg. 1.79-3(d)

Cost per $1,000 of Protection for 1 month Amount

Under Age 25 $ 0.05

25 through 29 $ 0.06

30 through 34 $ 0.08

35 through 39 $ 0.09

40 through 44 $ 0.10

45 through 49 $ 0.15

50 through 54 $ 0.23

55 through 59 $ 0.43

60 through 64 $ 0.66

65 through 69 $ 1.27

70 and older $ 2.06


• Step 3 – compute benefit• {$100k / $1,000 = $100}• {$100 x .43 = $43 per month}• {12 months x $43 = $516 for the year}• Step 4 – reduce benefit by amount paid out of

pocket (ex: John paid $16 out of pocket for the year) {$516 - $16 = $500}


• Step 5 – Report the $500 taxable fringe benefit on Form W-2

• Report benefit in box 12 and indicate correct code – $500, mark code “c”

• If the employee is a retiree, use the same process, but mark code “m”

Tuition Reimbursement

• IRC 127(a)(2)• Requirements to be excludable: - written plan - no alternative benefit to education - $5,250 limit per employee - no discrimination (highly compensated)


• Eligibility - Current Employees - Laid Off Employees - On Leave Employees - Employees retired on disability{Per Treas. Reg. 1.127-2(h)}


• Qualifying Expenses: - Tuition, Books, Supplies, & Equipment for class• Does not cover supplies/equipment that may

be kept after the course is over [IRC 127(c)(1)]


• How do you treat tuition reimbursements in excess of $5,250?

ANSWER: Include the excess as a taxable fringe benefit subject to the proper tax withholdings.

• W-2 Boxes 1, 3, 5 wages subject to applicable withholdings

Awards & Gifts

• IRC 74(c)• Government Employers may provide awards

and prizes to employees. These awards/prizes are taxable unless specifically excluded by the IRC.

• Nontaxable Awards IRC 74(b), 74(e)(4), & 74(c)

• CASH PRIZE/AWARDS = TAXABLE

Awards & Gifts continued

• IRC 74(b) – awards or prizes transferred to charities

• Requirements: - past achievement - selected w/o entering contest - no future conditions attached - transferred to charity prior to receipt


• IRC 74(e)(4) – de minimus awards & prizes• Ex: nominal gifts for b-days, holiday turkeys,

performance awards of little value• If the award exceeds either the value or

frequency limitations, then the entire award is a taxable fringe benefit. (it is not just the amount that exceeds the threshold)

• Per Treas. Reg. 1.132-6(d)(4)

Awards & Gifts continued(de minimus explanation)

• De Minimus threshold• NO set dollar amount• Courts have determined various amounts• Acceptable de minimus fringes have ranged

from $15 to $23 • Gift cards generally taxable (especially if

there’s multiple uses)


• IRC 74(c) – certain employee achievement awards

• See Prop. Treas. Reg. 1.274-8(2)(b)(iv) for listing of items which are not excluded

• Length of service – 1st 5 yrs & every 5 yrs• Safety Achievement – EE’s less than 1 yr, <

10% of eligible EE’s


• If the award or gift does not fall into the nontaxable exclusion, then the amount/value is reported as a taxable fringe benefit

• Include this amount in Box 1 wages of the W-2 • This amount is subject to SS and MED, unless

the employee’s position is not covered by SS and MED

Roth 403(b) Plans

• Traditional 403(b) plans – tax sheltered annuities

- reduces your current taxable income - tax deferral - Form W-2, box 12, code E

Roth 403(b) Plans

• ROTH 403(b) plans - elective contributions included in gross

income and taxed now - tax free distributions during retirement under

certain conditions - Form W-2, box 12, code BB (important

distinction)

Roth 403(b) Plans

• Irrevocable designations• Traditional + Roth• 2012 Elective Deferral Limits = $17,000 • 2012 Catch up Contributions = $5,500• IRC 402(g)

Roth 403(b) Plans

• Designated Roth Account• Employer/Plan Administrator responsible for

tracking Roth contributions, gains & losses until account balance is completely distributed

• Keep separate• IRC 402(a) - separate account requirement

Deceased Employee

• Must report accrued wages, vacation, and other compensation after the date of death

• Payment made in same year of death, then wages are subject to Social Security & Medicare withholdings, NO FITW

• Payment made in the year following, then no tax withholdings are necessary

Deceased Employee

EXAMPLE• Before Employee A’s death on June 15, 2012,

A was employed by Employer X and received $10,000 in wages in which FIT of $1,500 was withheld. When A died, Employer X owed A $2,000 in wages and $1,000 in accrued vacation pay (Total of $3,000). $3,000, LESS SS & MED W/H, was paid to A’s estate in July 2012.

Deceased Employee

EXAMPLE CONTINUEDBecause Employer X made the final payment in

year of death, SS & MED withholdings apply. • FORM W-2• Box 1 - $10,000; Box 2 - $1,500; Box 3 -

$13,000, Box 4 – applicable SS W/H; Box 5 - $13,000; Box 6 – applicable MED W/H

Deceased Employee

• Must also report the final payment on Form 1099-MISC, box 3, to the estate or beneficiary whether or not the payment was made in year of death or after (Rev. Rul. 86-109, 1986-2 C.B. 196)

• Death and retirement benefits – 1099-R

Resources

• http://www.irs.gov/govt/fslg/index.html• http://www.socialsecurity.gov/employer/• IRS Monthly Phone Forums• Online Webinars• FSLG Directory

http://www.irs.gov/govt/fslg/index.html

http://www.socialsecurity.gov/employer/

THE END

THANKS FOR YOUR ATTENDANCE!

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