MONTANA ASSOCIATION OF COUNTIES MACO OUTREACH SEMINAR

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MONTANA ASSOCIATION OF COUNTIES
(MACO)OUTREACH SEMINAR

• FEBRUARY 12, 2008

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INTERNAL REVENUE SERVICE

• Dwayne Jacobs
• FSLG Specialist
• Sheridan, Wyoming

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TOPICS TODAY

• ELECTED OFFICIALS-EMPLOYEES
• FRINGE BENEFITS (EMPLOYEE REIMBURSEMENTS)
• TRAVEL REIMBURSEMENTS AND ALLOWANCES
• POTENTIAL ISSUES
• IF TIME PERMITS (FORM 1099s 218 AGREEMENTS)

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ARE ELECTED OFFICIALS EMPLOYEES?

• ELECTED AND MOST APPOINTED OFFICIALS ARE DEFINED
  BY STATE STATUTE AS EMPLOYEES OF THE ENTITY THEY
  SERVE
• E.G., MAYORS, COUNTY COMMISSIONERS, CITY COUNCIL
  MEMBERS

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ELECTED OFFICIALS

• EMPLOYEES FOR FITW PER IRC 3401(C)
• EMPLOYEES FOR SOCIAL SECURITY MEDICARE PER IRC
  3121(D)(2) AND 3121(D)(4)
• SEE PUB 963 PUB 1779

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ELECTED OFFICIALS

• HAS AUTHORITY TO EXERCISE POWER OF THE GOVERNMENT
• DOES SO AS AN AGENT AND EMPLOYEE OF THE GOVT
  ENTITY
• BUCKLEY V. VALEO, 424 U.S. 1, 141(1975)
• METCALF EDDY V. MITCHEL, 269 u.s. 514 (1926)

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WHAT ISA FRINGE BENEFIT?

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FRINGE BENEFITS

• ANY PROPERTY OR SERVICE OR CASH (Other than
  Salary)
• PROVIDED BY EMPLOYER
• TAXABLE UNLESS EXCLUDED SPECIFICALLY BY LAW
• Example Medical Premiums IRC 106

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WHAT TO DO?

• Identify specific benefit provided to employee(s)
• Determine if benefit is excluded by law.
• Determine if benefit is fully taxable.

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Non-Taxable Fringe Benefits

• No additional cost service
• Qualified employee discounts
• Working condition fringe
• De minimis fringe
• Qualified transportation expenses
• Qualified Moving Expense Reimbursements

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TAXABLE FRINGE BENEFITS

• INCLUDE in Employees wages and on W-2 (Never
  on 1099-MISC)
• Subject to Federal Withholding, Social Security
  and Medicare
• Even if benefit is received by/for spouse or
  child of employee
• Depends on Entities 218 Agreement

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ACCOUNTABLE PLAN

• Business Connection
• Adequate accounting by employee in reasonable
  time period
• Excess reimbursement returned in a reasonable
  time period

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NON-ACCOUNTABLE PLAN

• DOES NOT MEET ALL 3 REQUIREMENTS FOR AN
  ACCOUNTABLE PLAN
• BENEFIT IS FULLY TAXABLE WHEN PAID

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NON-TRAVEL FRINGE BENEFITS

• Clothing
• Equipment
• Professional Licenses
• Awards
• Bonuses
• Housing

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AWARDS ARE TAXABLE

• CASH PRIZES OR AWARDS ARE ALWAYS TAXABLE
• PERFORMANCE AWARDS ARE ALWAYS TAXABLE
• NON-CASH
• USE FAIR MARKET VALUE

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AWARDS EXCEPTIONS

• Certain Awards transferred to Charities
• Pulitzer, Nobel Peace Prize
• Certain Employee Achievement Awards
• Length of Service, Safety - Not Cash
• Nominal Holiday/Special Occasion Awards
• Coffee mugs, plagues, etc.

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REMEMBER

• If the benefit is taxable
• Determine the Value of the benefit
• Include it in Wages and W-2

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TRAVEL-RELATED FRINGE BENEFITS

• Per Diem Allowances
• for lodging, meals and/or incidentals
• for business related travel
• while away from home overnight

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MEAL ALLOWANCES WHILE TRAVELING ON BUSINESS

• MEALS AWAY FROM HOME
• OVERNIGHT
• Accountable Plan - Not taxable
• NOT OVERNIGHT
• Taxable as wages

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MEAL ALLOWANCES/ REIMBURSEMENTS

• Exception for Meals Not Taxable Not Away From
  Home
• Meals with meetings
• Meals with entertainment
• De minimis meals

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MEAL ALLOWANCES/ REIMBURSEMENTS

• Meals with Meetings or Entertainment
• Tax-free if meal meets test
• Directly-related test, or
• Associated with test

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MEAL ALLOWANCES/ REIMBURSEMENTS

• Tax-Free Meals With Meals/Entertainment
• Directly Related Test
• main purpose of meal is business
• clear business setting or
• active business conducted

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MEAL ALLOWANCES/ REIMBURSEMENTS

• Associated With Test
• Meals in clear business purpose
• Substantial business discussions/negotiations
  directly preceding or following meal

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MEAL ALLOWANCES/ REIMBURSEMENTS

• De Minimis Meals - Tax-Free if
• Meal is small in value and occasional
• Not provided routinely or often
• Provided so employee can work overtime
• Enables employee to work overtime

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MEAL ALLOWANCES/ REIMBURSEMENTS

• Substantiation Requirements
• Meals While Traveling Away From Home
• per diem method, or
• actual expense method

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MEAL ALLOWANCES/ REIMBURSEMENTS

• Meals While Traveling Away from Home
• Actual Expense Reimbursements
• Tax-Free if
• paid under an accountable plan
• receipts and/or records required
• verify amount, date, business purpose

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MEAL ALLOWANCES/ REIMBURSEMENTS

• Substantiation Methods
• Meals While Not Away From Home
• Taxable if Per Diem reimbursement
• Tax-free if actual expenses reimbursed
  under Accountable Plan

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MEAL ALLOWANCES WHEN NOT TRAVELING

• Meals with business meetings -
• NOT taxable if
• clear business setting
• directly related
• Employer buys you lunch -
• Taxable as wages

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AUTOMOBILE EXPENSES

• EMPLOYEE CAR USED FOR EMPLOYERS BUSINESS
• 2008 Federal Mileage Rate - .505
• At this rate or less Non-taxable to Employee
• Excess over this rate Taxable to Employee -
  only the excess amount
• If Employee chooses not to get reimbursed, cannot
  claim on personal tax return.
• Substantiation required

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SUBSTANTIATION

• Employee reports to Employer
• Date, Purpose, Place of each trip
• Mileage at or near the time incurred
• Examples Diary, log, trip sheet, expense
  statement or similar record
• Commuting is always taxable - it is non-business
  travel

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EMPLOYER-PROVIDED VEHICLE

• HOW DOES EMPLOYEE ACCOUNT FOR PERSONAL USE?
• Personal Use is taxable
• Verified Business Use is not taxable
• Employee can reimburse Employer for personal use

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Personal Use

• IF NO RECORD KEPT
• Value of ALL use is taxable
• IF RECORD KEPT
• Only Personal Use is taxable

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VALUING PERSONAL USE - THREE RULES

• Automobile Lease Valuation Rule
• see Publication 15-B page 19
• Cents-Per-Mile Rule
• see Publication 15-B page 17
• Commuting Rule
• see Publication 15-B page 18

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EMPLOYER - PROVIDED VEHICLES

• Lease Valuation Rule
• Multiply personal x lease value, and
• Lease value found in tables published by IRS,
• Multiply personal miles x 5.5 cents if
  employer provides fuel

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EMPLOYER - PROVIDED VEHICLES

• Cents-Per-Mile Rule
• Multiply personal miles x federal mileage rate
• cant use this rule if vehicle is valued at more
  than 15,300

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EMPLOYER - PROVIDED VEHICLES

• Cents-Per-Mile Rule
• Vehicle must be used
• regularly 50 or more in employers business, or
  
• in commuter pool, or
• be driven 10,000 miles or more per year

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EMPLOYER - PROVIDED VEHICLES

• Commuter Valuation Rule
• Personal use valued at 1.50 each way
• Cant be used for elected officials or
  control employees (highly paid)

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EMPLOYER - PROVIDED VEHICLES

• Commuting Valuation Rule
• Personal use (other than commuting) prohibited
  in written policy by employer
• Employer must require employee to commute in
  vehicle for valid non-pay reason

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EMPLOYER - PROVIDED VEHICLES

• Qualified Non-Personal Use Vehicle
• By design, vehicle is unlikely to have
  personal use
• Use of vehicle is tax-free

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EMPLOYER - PROVIDED VEHICLES

• Qualified Non-Personal Use Vehicles
• Clearly marked police and fire vehicles
• School buses
• Unmarked law enforcement vehicles
• Special purpose vehicles - snow plows, etc
• Vans, pickups must be modified to qualify

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SPECIAL ACCOUNTING RULES (Automobiles)

• Employer can elect to defer withholding
• Employer can withhold at 28
• November and December benefits may be treated as
  paid in next year
• Employer can elect not to withhold FIT
• Employer must tell employee
• Employer includes in wages on W-2

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ISSUES FOUND IN CITIES COUNTIES

• MEALS BY EMPLOYEES AND COUNTY COMMISSIONERS WHILE
  NOT AWAY FROM HOME OVERNIGHT
• EMPLOYEES RECEIVING BENEFITS (CLOTHING,
  UTILITIES, MEDICAL BENEFITS, CLUB DUES)
• EMPLOYEES TAKING HOME COUNTY VEHICLESON CALL

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EXAMPLE MEALS BY EMPLOYEE

• COUNTY TREASURER TRAVELS TO SEMINAR IN ANOTHER
  CITY. SHE LEAVES HER HOME AT 600 AM AND RETURNS
  HOME THAT NIGHT AT 800 PM. TREASURER IS
  REIMBURSED FOR HER MEAL AFTER TURNING IN A
  RECEIPT.
• _at_EVEN THOUGH TREASURER WAS AWAY FROM HOME, SHE
  DID NOT STAY OVERNIGHT. THE MEAL MONEY IS TAXABLE
  TO THE TREASURER AND REPORTED ON HER W-2 WITH
  EMPLOYMENT TAXES WITHHELD.

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EXAMPLE EMPLOYEE RECEIVING BENEFITS-CLOTHING

• COUNTY EMPLOYEE WORKS FOR PUBLIC WORKS AND GETS
  200 A QUARTER FOR CLOTHING. AMOUNT IN PROVIDED
  WHEN EMPLOYEE TURNS IN RECEIPTS TO CLERK.
• _at_ THE CLOTHING MEETS THE ACCOUNTABLE PLAN RULES,
  HOWEVER, IF CLOTHES ARE SUITABLE FOR EVERYDAY
  WEAR (BLUE JEANS, JACKETS, ETC.) THEN STILL
  TAXABLE AND REQUIRED TO BE REPORTED ON THE W-2
  WITH EMPLOYMENT TAXES WITHHELD.

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EXAMPLE EMPLOYEE TAKING HOME COUNTY VEHICLE

• PUBLIC WORKS FOREMAN TAKES HOME THE COUNTY
  PICKUP SINCE HE IS ON CALL 24 HOURS A DAY. THE
  CITY REQUIRES HIM TO HAVE THE VEHICLE IN CASE OF
  BEING CALLED OUT DURING OFF DUTY.
• _at_THE VEHICLE IS NOT A QUALIFIED NON-PERSONAL USE
  VEHICLE, THUS THE COMMUTING IS A NON-CASH TAXABLE
  FRINGE BENEFIT

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NEED MORE INFORMATION?CALL ME307-672-7425
X33Dwayne JacobsFederal State and Local
Government Specialist
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IRS CONTACTS

• IRS INFORMATION
• 1-800-829-1040
• IRS PUBLICATIONS
• 1-800-829-3676
• INTERNET
• www.irs.gov/govt/fslg

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THANK YOU!