A perk or fringe benefit is a financial benefit that your employer provides for you. Whether that benefit is taxable depends on a number of factors. The tax implications of many fringe benefits are well understood. Here are some less familiar tax implications:
Airline Miles Become Taxable
Earlier this year (prompted by a claim by Citibank that the miles it grants its customers upon opening an account (among other items) are gifts and therefore the recipient is on the hook for paying taxes) the IRS publicly stated that the value of frequent-flier miles are “provided as a premium for opening a financial account” that those should be deemed taxable income. The miles earned for purchasing a ticket? Still unclear…
Health Insurance Benefits
Under federal law, certain fringe benefits provided to employees are not taxable. For example, health insurance benefits that an employer provides to an employee are not taxed (on the employee), as long as benefits go to the employee, spouse or dependents. However, this definition excludes domestic partners, who are not spouses under the law.
If your employer offers health insurance to you and your “domestic partner”, the added cost of covering your domestic partner may be taxable as “imputed income”. Imputed income in this instance is the monthly value of your domestic partner’s coverage. This amount is added to your gross income and subject to federal income tax withholding and employment taxes.
Depending on whether your state gives legal recognition to various forms of domestic partnerships, this type of benefit may be exempt from state taxes.
Under the American Recovery and Reinvestment Act (ARRA), popularly known as the Stimulus Bill, beginning in March of 2009 tax exclusions on a monthly basis for employer-provided commuter highway vehicle transportation as well as transit pass benefits was increased to $230. This fringe benefit, which gave transit and vanpool users the same tax break as drivers, was extended through December 2011.
However, Congress allowed this benefit to expire. Starting January 2012, the amount that can be excluded from reported wages for individuals who buyrail, bus, or other mass transit licenses or passes under their employer-sponsored program will decline from the previous $230 per month exclusion to a $125 per month exclusion. On the other hand, the monthly fringe benefit exclusion for workplace parking is increasing to $240 from $230 this year.
Employees in 2012 may still exclude from income up to $125 per month in transit benefits and $240 per month in parking benefits. Employees are eligible to receive benefits for commuting, transit passes and parking during the same month. As part of the Act, these benefits are not considered part of the employee’s gross income for federal income tax reasons and are excluded from reported payroll wage figures.
Job-related educational expenses may be excluded from an employee’s income as a working condition fringe benefit. This exclusion is available for any form of educational instruction or training that improves the job-related abilities of an employee. Employees and contractors of government employers may qualify as well. Educational expenses may include tuition and books, as well as certain transportation and housing costs. For example, you may deduct expenses from driving your car at a statutory rate.
There are multiple provisions in the tax code for educational exclusions. If an educational expense does not qualify under one provision, check the others.
For example, an employer may also help pay for an employee’s education, when the education is not job-related. In this case, the employer is required to have a written educational assistance plan, and may not discriminate in favor of highly compensated employees. Tax-exempt assistance is normally limited to $5250 per employer.
The firm of Katz & Phillips, P.A. believe that each American should have a comprehensive team of financial and legal advisors identified for commonly encountered problems, from tax preparation to personal liability protection. With a team identified you won’t be scrambling to find appropriate assistance when an issue crops up. When considering an Orlando DUI Lawyer, please keep Katz & Phillips, P.A. in the forefront of your mind and Rolodex.