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Mypay com Publication 3 - Introductory Material Table of Contents What's New Reminders IntroductionOrdering forms and publications. Mypay com Tax questions. Mypay com Useful Items - You may want to see: What's New Earned income credit. Mypay com  The maximum income you can earn and still claim the earned income credit has increased. Mypay com You may be able to take the earned income credit if you earned less than $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children; $43,038 ($48,378 for married filing jointly) if you have two qualifying children; $37,870 ($43,210 for married filing jointly) if you have one qualifying child; and $14,340 ($19,680 for married filing jointly) if you do not have any qualifying children. Mypay com See Earned Income Credit , later, under Credits. Mypay com Standard mileage rate. Mypay com  The standard mileage rate for the cost of operating your car for business use in 2013 is 56. Mypay com 5 cents a mile. Mypay com The standard mileage rate for operating your car during 2013 to get medical care or to move is 24 cents a mile. Mypay com The standard mileage rate for charitable use of your vehicle is 14 cents a mile. Mypay com Filing status for same-sex married couples. Mypay com  If you have a same-sex spouse whom you legally married in a state (or foreign country) that recognizes same-sex marriage, you and your spouse generally must use the married filing jointly or married filing separately filing status on your 2013 return, even if you and your spouse now live in a state (or foreign country) that does not recognize same-sex marriage. Mypay com See Filing Returns , later. Mypay com Reminders Change of address. Mypay com  If you change your mailing address, be sure to notify the Internal Revenue Service (IRS) using Form 8822, Change of Address. Mypay com Mail it to the Internal Revenue Service Center for your old address. Mypay com (Addresses for the Service Centers are on the back of the form. Mypay com ) Use Form 8822-B, Change of Address or Responsible Party—Business, if you are changing a business address. Mypay com Third party designee. Mypay com  You can check the “Yes” box in the Third Party Designee area of your return to authorize the IRS to discuss your return with your preparer, a friend, a family member, or any other person you choose. Mypay com This allows the IRS to call the person you identified as your designee to answer any questions that may arise during the processing of your tax return. Mypay com It also allows your designee to perform certain actions. Mypay com See your income tax instructions for details. Mypay com Future developments. Mypay com  For the latest information about developments related to Publication 3, such as legislation enacted after it was published, go to www. Mypay com irs. Mypay com gov/pub3. Mypay com Photographs of missing children. Mypay com  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Mypay com Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Mypay com You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Mypay com Introduction This publication covers the special tax situations of active members of the U. Mypay com S. Mypay com Armed Forces. Mypay com It does not cover military pensions or veterans' benefits or give the basic tax rules that apply to all taxpayers. Mypay com For information on military pensions or veterans' benefits, see Publication 525, Taxable and Nontaxable Income. Mypay com If you need the basic tax rules or information on another subject not covered here, you can check our other free publications. Mypay com See Publication 910, IRS Guide to Free Tax Services, for a list and descriptions of the different tax publications. Mypay com For federal tax purposes, the U. Mypay com S. Mypay com Armed Forces includes commissioned officers, warrant officers, and enlisted personnel in all regular and reserve units under control of the Secretaries of the Defense, Army, Navy, and Air Force. Mypay com The U. Mypay com S. Mypay com Armed Forces also includes the Coast Guard. Mypay com It does not include the U. Mypay com S. Mypay com Merchant Marine or the American Red Cross. Mypay com Members serving in an area designated or treated as a combat zone are granted special tax benefits. Mypay com In the event an area ceases to be a combat zone, the IRS will do its best to notify you. Mypay com Many of the relief provisions will end at that time. Mypay com Comments and suggestions. Mypay com   We welcome your comments about this publication and your suggestions for future editions. Mypay com   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Mypay com NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Mypay com Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Mypay com   You can send your comments from www. Mypay com irs. Mypay com gov/formspubs. Mypay com Click on “More Information” and then on “Comment on Tax Forms and Publications. Mypay com ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Mypay com Ordering forms and publications. Mypay com   Visit www. Mypay com irs. Mypay com gov/formspubs to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Mypay com Internal Revenue Service 1201 N. Mypay com Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Mypay com   If you have a tax question, check the information available on IRS. Mypay com gov or call 1-800-829-1040. Mypay com We cannot answer tax questions sent to either of the above addresses. Mypay com Useful Items - You may want to see: Publication 54 Tax Guide for U. Mypay com S. Mypay com Citizens and Resident Aliens Abroad 463 Travel, Entertainment, Gift, and Car Expenses 501 Exemptions, Standard Deduction, and Filing Information 503 Child and Dependent Care Expenses 505 Tax Withholding and Estimated Tax 516 U. Mypay com S. Mypay com Government Civilian Employees Stationed Abroad 519 U. Mypay com S. Mypay com Tax Guide for Aliens 521 Moving Expenses 523 Selling Your Home 525 Taxable and Nontaxable Income 527 Residential Rental Property 529 Miscellaneous Deductions 559 Survivors, Executors, and Administrators 590 Individual Retirement Arrangements (IRAs) 596 Earned Income Credit (EIC) 970 Tax Benefits for Education 3920 Tax Relief for Victims of Terrorist Attacks Form (and Instructions) 1040X Amended U. Mypay com S. Mypay com Individual Income Tax Return 1310 Statement of Person Claiming Refund Due a Deceased Taxpayer 2848 Power of Attorney and Declaration of Representative 3903 Moving Expenses 4868 Application for Automatic Extension of Time To File U. Mypay com S. Mypay com Individual Income Tax Return 8822 Change of Address 8822-B Change of Address or Responsible Party—Business 9465 Installment Agreement Request See How To Get Tax Help near the end of this publication, for information about getting IRS publications and forms. 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Mypay com Publication 15-B - Main Content Table of Contents 1. Mypay com Fringe Benefit OverviewAre Fringe Benefits Taxable? Cafeteria Plans Simple Cafeteria Plans 2. Mypay com 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. Mypay com Fringe Benefit Valuation RulesGeneral Valuation Rule Cents-Per-Mile Rule Commuting Rule Lease Value Rule Unsafe Conditions Commuting Rule 4. Mypay com Rules for Withholding, Depositing, and ReportingTransfer of property. Mypay com Amount of deposit. Mypay com Limitation. Mypay com Conformity rules. Mypay com Election not to withhold income tax. Mypay com How To Get Tax Help 1. Mypay com Fringe Benefit Overview A fringe benefit is a form of pay for the performance of services. Mypay com 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. Mypay com Performance of services. Mypay com   A person who performs services for you does not have to be your employee. Mypay com A person may perform services for you as an independent contractor, partner, or director. Mypay com 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. Mypay com Provider of benefit. Mypay com   You are the provider of a fringe benefit if it is provided for services performed for you. Mypay com 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. Mypay com 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. Mypay com Recipient of benefit. Mypay com   The person who performs services for you is considered the recipient of a fringe benefit provided for those services. Mypay com That person may be considered the recipient even if the benefit is provided to someone who did not perform services for you. Mypay com For example, your employee may be the recipient of a fringe benefit you provide to a member of the employee's family. Mypay com 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. Mypay com Section 2 discusses the exclusions that apply to certain fringe benefits. Mypay com Any benefit not excluded under the rules discussed in section 2 is taxable. Mypay com Including taxable benefits in pay. Mypay com   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. Mypay com Any amount the law excludes from pay. Mypay com Any amount the recipient paid for the benefit. Mypay com The rules used to determine the value of a fringe benefit are discussed in section 3. Mypay com   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. Mypay com However, you can use special rules to withhold, deposit, and report the employment taxes. Mypay com These rules are discussed in section 4. Mypay com   If the recipient of a taxable fringe benefit is not your employee, the benefit is not subject to employment taxes. Mypay com However, you may have to report the benefit on one of the following information returns. Mypay com 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. Mypay com For more information, see the instructions for the forms listed above. Mypay com 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. Mypay com 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. Mypay com Generally, a cafeteria plan does not include any plan that offers a benefit that defers pay. Mypay com However, a cafeteria plan can include a qualified 401(k) plan as a benefit. Mypay com Also, certain life insurance plans maintained by educational institutions can be offered as a benefit even though they defer pay. Mypay com Qualified benefits. Mypay com   A cafeteria plan can include the following benefits discussed in section 2. Mypay com Accident and health benefits (but not Archer medical savings accounts (Archer MSAs) or long-term care insurance). Mypay com Adoption assistance. Mypay com Dependent care assistance. Mypay com Group-term life insurance coverage (including costs that cannot be excluded from wages). Mypay com Health savings accounts (HSAs). Mypay com Distributions from an HSA may be used to pay eligible long-term care insurance premiums or qualified long-term care services. Mypay com Benefits not allowed. Mypay com   A cafeteria plan cannot include the following benefits discussed in section 2. Mypay com Archer MSAs. Mypay com See Accident and Health Benefits in section 2. Mypay com Athletic facilities. Mypay com De minimis (minimal) benefits. Mypay com Educational assistance. Mypay com Employee discounts. Mypay com Employer-provided cell phones. Mypay com Lodging on your business premises. Mypay com Meals. Mypay com Moving expense reimbursements. Mypay com No-additional-cost services. Mypay com Transportation (commuting) benefits. Mypay com Tuition reduction. Mypay com Working condition benefits. Mypay com It also cannot include scholarships or fellowships (discussed in Publication 970, Tax Benefits for Education). Mypay com $2,500 limit on a health flexible spending arrangement (FSA). Mypay com   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. Mypay com For plan years beginning after December 31, 2013, the limit is unchanged at $2,500. Mypay com   A cafeteria plan offering a health FSA must be amended to specify the $2,500 limit (or any lower limit set by the employer). Mypay com 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. Mypay com 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. Mypay com   For more information, see Notice 2012-40, 2012-26 I. Mypay com R. Mypay com B. Mypay com 1046, available at www. Mypay com irs. Mypay com gov/irb/2012-26_IRB/ar09. Mypay com html. Mypay com Employee. Mypay com   For these plans, treat the following individuals as employees. Mypay com A current common-law employee. Mypay com See section 2 in Publication 15 (Circular E) for more information. Mypay com A full-time life insurance agent who is a current statutory employee. Mypay com 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. Mypay com Exception for S corporation shareholders. Mypay com   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Mypay com 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. Mypay com 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. Mypay com Plans that favor highly compensated employees. Mypay com   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. Mypay com A plan you maintain under a collective bargaining agreement does not favor highly compensated employees. Mypay com   A highly compensated employee for this purpose is any of the following employees. Mypay com An officer. Mypay com A shareholder who owns more than 5% of the voting power or value of all classes of the employer's stock. Mypay com An employee who is highly compensated based on the facts and circumstances. Mypay com A spouse or dependent of a person described in (1), (2), or (3). Mypay com Plans that favor key employees. Mypay com   If your plan favors key employees, you must include in their wages the value of taxable benefits they could have selected. Mypay com 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. Mypay com However, a plan you maintain under a collective bargaining agreement does not favor key employees. Mypay com   A key employee during 2014 is generally an employee who is either of the following. Mypay com An officer having annual pay of more than $170,000. Mypay com An employee who for 2014 is either of the following. Mypay com A 5% owner of your business. Mypay com A 1% owner of your business whose annual pay was more than $150,000. Mypay com Simple Cafeteria Plans Eligible employers meeting contribution requirements and eligibility and participation requirements can establish a simple cafeteria plan. Mypay com Simple cafeteria plans are treated as meeting the nondiscrimination requirements of a cafeteria plan and certain benefits under a cafeteria plan. Mypay com Eligible employer. Mypay com   You are an eligible employer if you employ an average of 100 or fewer employees during either of the 2 preceding years. Mypay com 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. Mypay com 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. Mypay com Eligibility and participation requirements. Mypay com   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. Mypay com 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. Mypay com S. Mypay com source. Mypay com Contribution requirements. Mypay com   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. Mypay com 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. Mypay com More information. Mypay com   For more information about cafeteria plans, see section 125 of the Internal Revenue Code and its regulations. Mypay com 2. Mypay com Fringe Benefit Exclusion Rules This section discusses the exclusion rules that apply to fringe benefits. Mypay com These rules exclude all or part of the value of certain benefits from the recipient's pay. Mypay com The excluded benefits are not subject to federal income tax withholding. Mypay com 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. Mypay com This section discusses the exclusion rules for the following fringe benefits. Mypay com Accident and health benefits. Mypay com Achievement awards. Mypay com Adoption assistance. Mypay com Athletic facilities. Mypay com De minimis (minimal) benefits. Mypay com Dependent care assistance. Mypay com Educational assistance. Mypay com Employee discounts. Mypay com Employee stock options. Mypay com Employer-provided cell phones. Mypay com Group-term life insurance coverage. Mypay com Health savings accounts (HSAs). Mypay com Lodging on your business premises. Mypay com Meals. Mypay com Moving expense reimbursements. Mypay com No-additional-cost services. Mypay com Retirement planning services. Mypay com Transportation (commuting) benefits. Mypay com Tuition reduction. Mypay com Working condition benefits. Mypay com See Table 2-1, later, for an overview of the employment tax treatment of these benefits. Mypay com Table 2-1. Mypay com Special Rules for Various Types of Fringe Benefits (For more information, see the full discussion in this section. Mypay com ) 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. Mypay com Exempt, except for certain payments to S corporation employees who are 2% shareholders. Mypay com Exempt Achievement awards Exempt1 up to $1,600 for qualified plan awards ($400 for nonqualified awards). Mypay com 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. Mypay com 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). Mypay com Educational assistance Exempt up to $5,250 of benefits each year. Mypay com (See Educational Assistance , later in this section. Mypay com ) Employee discounts Exempt3 up to certain limits. Mypay com (See Employee Discounts , later in this section. Mypay com ) Employee stock options See Employee Stock Options , later in this section. Mypay com Employer-provided cell phones Exempt if provided primarily for noncompensatory business purposes. Mypay com Group-term life insurance coverage Exempt Exempt1,4, 7 up to cost of $50,000 of coverage. Mypay com (Special rules apply to former employees. Mypay com ) Exempt Health savings accounts (HSAs) Exempt for qualified individuals up to the HSA contribution limits. Mypay com (See Health Savings Accounts , later in this section. Mypay com ) Lodging on your business premises Exempt1 if furnished for your convenience as a condition of employment. Mypay com Meals Exempt if furnished on your business premises for your convenience. Mypay com Exempt if de minimis. Mypay com Moving expense reimbursements Exempt1 if expenses would be deductible if the employee had paid them. Mypay com 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). Mypay com (See Transportation (Commuting) Benefits , later in this section. Mypay com ) Exempt if de minimis. Mypay com Tuition reduction Exempt3 if for undergraduate education (or graduate education if the employee performs teaching or research activities). Mypay com Working condition benefits Exempt Exempt Exempt 1 Exemption does not apply to S corporation employees who are 2% shareholders. Mypay com 2 Exemption does not apply to certain highly compensated employees under a self-insured plan that favors those employees. Mypay com 3 Exemption does not apply to certain highly compensated employees under a program that favors those employees. Mypay com 4 Exemption does not apply to certain key employees under a plan that favors those employees. Mypay com 5 Exemption does not apply to services for tax preparation, accounting, legal, or brokerage services. Mypay com 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. Mypay com 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. Mypay com Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Mypay com Also, show it in box 12 with code “C. Mypay com ” The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax. Mypay com Accident and Health Benefits This exclusion applies to contributions you make to an accident or health plan for an employee, including the following. Mypay com Contributions to the cost of accident or health insurance including qualified long-term care insurance. Mypay com Contributions to a separate trust or fund that directly or through insurance provides accident or health benefits. Mypay com Contributions to Archer MSAs or health savings accounts (discussed in Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans). Mypay com 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. Mypay com Payments or reimbursements of medical expenses. Mypay com Payments for specific injuries or illnesses (such as the loss of the use of an arm or leg). Mypay com The payments must be figured without regard to any period of absence from work. Mypay com Accident or health plan. Mypay com   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. Mypay com The plan may be insured or noninsured and does not need to be in writing. Mypay com Employee. Mypay com   For this exclusion, treat the following individuals as employees. Mypay com A current common-law employee. Mypay com A full-time life insurance agent who is a current statutory employee. Mypay com A retired employee. Mypay com A former employee you maintain coverage for based on the employment relationship. Mypay com A widow or widower of an individual who died while an employee. Mypay com A widow or widower of a retired employee. Mypay com 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. Mypay com Special rule for certain government plans. Mypay com   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. Mypay com See section 105(j) for details. Mypay com Exception for S corporation shareholders. Mypay com   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Mypay com 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. Mypay com 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. Mypay com Exclusion from wages. Mypay com   You can generally exclude the value of accident or health benefits you provide to an employee from the employee's wages. Mypay com Exception for certain long-term care benefits. Mypay com   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. Mypay com 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. Mypay com However, you can exclude these contributions from the employee's wages subject to social security, Medicare, and federal unemployment (FUTA) taxes. Mypay com S corporation shareholders. Mypay com   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. Mypay com 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. Mypay com Exception for highly compensated employees. Mypay com   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. Mypay com 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. Mypay com   A self-insured plan is a plan that reimburses your employees for medical expenses not covered by an accident or health insurance policy. Mypay com   A highly compensated employee for this exception is any of the following individuals. Mypay com One of the five highest paid officers. Mypay com An employee who owns (directly or indirectly) more than 10% in value of the employer's stock. Mypay com An employee who is among the highest paid 25% of all employees (other than those who can be excluded from the plan). Mypay com   For more information on this exception, see section 105(h) of the Internal Revenue Code and its regulations. Mypay com COBRA premiums. Mypay com   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). Mypay com 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. Mypay com 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. Mypay com 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. Mypay com The award must meet the requirements for employee achievement awards discussed in chapter 2 of Publication 535, Business Expenses. Mypay com Employee. Mypay com   For this exclusion, treat the following individuals as employees. Mypay com A current employee. Mypay com A former common-law employee you maintain coverage for in consideration of or based on an agreement relating to prior service as an employee. Mypay com 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. Mypay com Exception for S corporation shareholders. Mypay com   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Mypay com 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. Mypay com 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. Mypay com Exclusion from wages. Mypay com   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. Mypay com The excludable annual amount is $1,600 ($400 for awards that are not “qualified plan awards”). Mypay com See chapter 2 of Publication 535 for more information about the limit on deductions for employee achievement awards. Mypay com    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. Mypay com   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. Mypay com The part of the cost that is more than your allowable deduction (up to the value of the awards). Mypay com The amount by which the value of the awards exceeds your allowable deduction. Mypay com Exclude the remaining value of the awards from the employee's wages. Mypay com Adoption Assistance An adoption assistance program is a separate written plan of an employer that meets all of the following requirements. Mypay com It benefits employees who qualify under rules set up by you, which do not favor highly compensated employees or their dependents. Mypay com 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. Mypay com It does not pay more than 5% of its payments during the year for shareholders or owners (or their spouses or dependents). Mypay com 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. Mypay com You give reasonable notice of the plan to eligible employees. Mypay com Employees provide reasonable substantiation that payments or reimbursements are for qualifying expenses. Mypay com For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Mypay com The employee was a 5% owner at any time during the year or the preceding year. Mypay com The employee received more than $115,000 in pay for the preceding year. Mypay com 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. Mypay com 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. Mypay com However, you cannot exclude these payments from wages subject to social security, Medicare, and federal unemployment (FUTA) taxes. Mypay com For more information, see the Instructions for Form 8839, Qualified Adoption Expenses. Mypay com 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. Mypay com Use code “T” to identify this amount. Mypay com Exception for S corporation shareholders. Mypay com   For this exclusion, do not treat a 2% shareholder of an S corporation as an employee of the corporation. Mypay com 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. Mypay com 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. Mypay com 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. Mypay com 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. Mypay com On-premises facility. Mypay com   The athletic facility must be located on premises you own or lease. Mypay com It does not have to be located on your business premises. Mypay com However, the exclusion does not apply to an athletic facility for residential use, such as athletic facilities that are part of a resort. Mypay com Employee. Mypay com   For this exclusion, treat the following individuals as employees. Mypay com A current employee. Mypay com A former employee who retired or left on disability. Mypay com A widow or widower of an individual who died while an employee. Mypay com A widow or widower of a former employee who retired or left on disability. Mypay com 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. Mypay com A partner who performs services for a partnership. Mypay com De Minimis (Minimal) Benefits You can exclude the value of a de minimis benefit you provide to an employee from the employee's wages. Mypay com 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. Mypay com 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. Mypay com Examples of de minimis benefits include the following. Mypay com Personal use of an employer-provided cell phone provided primarily for noncompensatory business purposes. Mypay com See Employer-Provided Cell Phones , later in this section, for details. Mypay com 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. Mypay com Holiday gifts, other than cash, with a low fair market value. Mypay com 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. Mypay com Meals. Mypay com See Meals , later in this section, for details. Mypay com Occasional parties or picnics for employees and their guests. Mypay com Occasional tickets for theater or sporting events. Mypay com Transportation fare. Mypay com See Transportation (Commuting) Benefits , later in this section, for details. Mypay com Employee. Mypay com   For this exclusion, treat any recipient of a de minimis benefit as an employee. Mypay com 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. Mypay com The services must be for a qualifying person's care and must be provided to allow the employee to work. Mypay com 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. Mypay com For more information, see Qualifying Person Test and Work-Related Expense Test in Publication 503, Child and Dependent Care Expenses. Mypay com Employee. Mypay com   For this exclusion, treat the following individuals as employees. Mypay com A current employee. Mypay com 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. Mypay com Yourself (if you are a sole proprietor). Mypay com A partner who performs services for a partnership. Mypay com Exclusion from wages. Mypay com   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. Mypay com   An employee can generally exclude from gross income up to $5,000 of benefits received under a dependent care assistance program each year. Mypay com This limit is reduced to $2,500 for married employees filing separate returns. Mypay com   However, the exclusion cannot be more than the smaller of the earned income of either the employee or employee's spouse. Mypay com 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. Mypay com For more information on the earned income limit, see Publication 503. Mypay com Exception for highly compensated employees. Mypay com   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. Mypay com   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Mypay com The employee was a 5% owner at any time during the year or the preceding year. Mypay com The employee received more than $115,000 in pay for the preceding year. Mypay com 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. Mypay com Form W-2. Mypay com   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. Mypay com Include any amounts you cannot exclude from the employee's wages in boxes 1, 3, and 5. Mypay com Report both the nontaxable portion of assistance (up to $5,000) and any assistance above the amount that is non-taxable to the employee. Mypay com Example. Mypay com   Company A provides a dependent care assistance flexible spending arrangement to its employees through a cafeteria plan. Mypay com In addition, it provides occasional on-site dependent care to its employees at no cost. Mypay com Emily, an employee of company A, had $4,500 deducted from her pay for the dependent care flexible spending arrangement. Mypay com In addition, Emily used the on-site dependent care several times. Mypay com The fair market value of the on-site care was $700. Mypay com 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). Mypay com 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. Mypay com Educational Assistance This exclusion applies to educational assistance you provide to employees under an educational assistance program. Mypay com The exclusion also applies to graduate level courses. Mypay com Educational assistance means amounts you pay or incur for your employees' education expenses. Mypay com These expenses generally include the cost of books, equipment, fees, supplies, and tuition. Mypay com 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. Mypay com 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. Mypay com Nor do they include the cost of lodging, meals, or transportation. Mypay com Educational assistance program. Mypay com   An educational assistance program is a separate written plan that provides educational assistance only to your employees. Mypay com The program qualifies only if all of the following tests are met. Mypay com The program benefits employees who qualify under rules set up by you that do not favor highly compensated employees. Mypay com 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. Mypay com The program does not provide more than 5% of its benefits during the year for shareholders or owners. Mypay com 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. Mypay com 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. Mypay com You give reasonable notice of the program to eligible employees. Mypay com Your program can cover former employees if their employment is the reason for the coverage. Mypay com   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Mypay com The employee was a 5% owner at any time during the year or the preceding year. Mypay com The employee received more than $115,000 in pay for the preceding year. Mypay com 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. Mypay com Employee. Mypay com   For this exclusion, treat the following individuals as employees. Mypay com A current employee. Mypay com A former employee who retired, left on disability, or was laid off. Mypay com 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. Mypay com Yourself (if you are a sole proprietor). Mypay com A partner who performs services for a partnership. Mypay com Exclusion from wages. Mypay com   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. Mypay com Assistance over $5,250. Mypay com   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. Mypay com Working condition benefits may be excluded from wages. Mypay com 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. Mypay com See Working Condition Benefits , later, in this section. Mypay com 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. Mypay com 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). Mypay com Employee. Mypay com   For this exclusion, treat the following individuals as employees. Mypay com A current employee. Mypay com A former employee who retired or left on disability. Mypay com A widow or widower of an individual who died while an employee. Mypay com A widow or widower of an employee who retired or left on disability. Mypay com 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. Mypay com A partner who performs services for a partnership. Mypay com Exclusion from wages. Mypay com   You can generally exclude the value of an employee discount you provide an employee from the employee's wages, up to the following limits. Mypay com For a discount on services, 20% of the price you charge nonemployee customers for the service. Mypay com For a discount on merchandise or other property, your gross profit percentage times the price you charge nonemployee customers for the property. Mypay com   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. Mypay com 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. Mypay com Exception for highly compensated employees. Mypay com   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. Mypay com All of your employees. Mypay com A group of employees defined under a reasonable classification you set up that does not favor highly compensated employees. Mypay com   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Mypay com The employee was a 5% owner at any time during the year or the preceding year. Mypay com The employee received more than $115,000 in pay for the preceding year. Mypay com 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. Mypay com Employee Stock Options There are three kinds of stock options—incentive stock options, employee stock purchase plan options, and nonstatutory (nonqualified) stock options. Mypay com 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. Mypay com 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. Mypay com 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. Mypay com 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. Mypay com 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. Mypay com 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. Mypay com ” See Regulations section 1. Mypay com 83-7. Mypay com 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. Mypay com The former spouse, rather than the employee, is required to include an amount in gross income when the former spouse exercises the stock options. Mypay com See Revenue Ruling 2002-22 and Revenue Ruling 2004-60 for details. Mypay com You can find Revenue Ruling 2002-22 on page 849 of Internal Revenue Bulletin 2002-19 at www. Mypay com irs. Mypay com gov/pub/irs-irbs/irb02-19. Mypay com pdf. Mypay com See Revenue Ruling 2004-60, 2004-24 I. Mypay com R. Mypay com B. Mypay com 1051, available at www. Mypay com irs. Mypay com gov/irb/2004-24_IRB/ar13. Mypay com html. Mypay com For more information about employee stock options, see sections 421, 422, and 423 of the Internal Revenue Code and their related regulations. Mypay com 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. Mypay com 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. Mypay com 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. Mypay com Noncompensatory business purposes. Mypay com   You provide a cell phone primarily for noncompensatory business purposes if there are substantial business reasons for providing the cell phone. Mypay com 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. Mypay com Cell phones provided to promote goodwill, boost morale, or attract prospective employees. Mypay com   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. Mypay com Additional information. Mypay com   For additional information on the tax treatment of employer-provided cell phones, see Notice 2011-72, 2011-38 I. Mypay com R. Mypay com B. Mypay com 407, available at  www. Mypay com irs. Mypay com gov/irb/2011-38_IRB/ar07. Mypay com html. Mypay com Group-Term Life Insurance Coverage This exclusion applies to life insurance coverage that meets all the following conditions. Mypay com It provides a general death benefit that is not included in income. Mypay com You provide it to a group of employees. Mypay com See The 10-employee rule , later. Mypay com It provides an amount of insurance to each employee based on a formula that prevents individual selection. Mypay com This formula must use factors such as the employee's age, years of service, pay, or position. Mypay com You provide it under a policy you directly or indirectly carry. Mypay com 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. Mypay com Determine the cost of the insurance, for this purpose, as explained under Coverage over the limit , later. Mypay com Group-term life insurance does not include the following insurance. Mypay com Insurance that does not provide general death benefits, such as travel insurance or a policy providing only accidental death benefits. Mypay com Life insurance on the life of your employee's spouse or dependent. Mypay com However, you may be able to exclude the cost of this insurance from the employee's wages as a de minimis benefit. Mypay com See De Minimis (Minimal) Benefits , earlier in this section. Mypay com 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. Mypay com See Regulations section 1. Mypay com 79-1 for details. Mypay com Employee. Mypay com   For this exclusion, treat the following individuals as employees. Mypay com A current common-law employee. Mypay com A full-time life insurance agent who is a current statutory employee. Mypay com An individual who was formerly your employee under (1) or (2). Mypay com 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. Mypay com Exception for S corporation shareholders. Mypay com   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Mypay com 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. Mypay com 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. Mypay com The 10-employee rule. Mypay com   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. Mypay com   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. Mypay com For example, count an employee who could receive insurance by paying part of the cost, even if that employee chooses not to receive it. Mypay com 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. Mypay com 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. Mypay com Exceptions. Mypay com   Even if you do not meet the 10-employee rule, two exceptions allow you to treat insurance as group-term life insurance. Mypay com   Under the first exception, you do not have to meet the 10-employee rule if all the following conditions are met. Mypay com 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. Mypay com 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. Mypay com You figure the coverage based on either a uniform percentage of pay or the insurer's coverage brackets that meet certain requirements. Mypay com See Regulations section 1. Mypay com 79-1 for details. Mypay com   Under the second exception, you do not have to meet the 10-employee rule if all the following conditions are met. Mypay com 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. Mypay com 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. Mypay com Evidence of whether an employee is insurable does not affect an employee's eligibility for insurance or the amount of insurance that employee gets. Mypay com   To apply either exception, do not consider employees who were denied insurance for any of the following reasons. Mypay com They were 65 or older. Mypay com They customarily work 20 hours or less a week or 5 months or less in a calendar year. Mypay com They have not been employed for the waiting period given in the policy. Mypay com This waiting period cannot be more than 6 months. Mypay com Exclusion from wages. Mypay com   You can generally exclude the cost of up to $50,000 of group-term life insurance from the wages of an insured employee. Mypay com You can exclude the same amount from the employee's wages when figuring social security and Medicare taxes. Mypay com 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. Mypay com Coverage over the limit. Mypay com   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. Mypay com Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Mypay com Also, show it in box 12 with code “C. Mypay com ” The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax. Mypay com   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. Mypay com For all coverage provided within the calendar year, use the employee's age on the last day of the employee's tax year. Mypay com You must prorate the cost from the table if less than a full month of coverage is involved. Mypay com Table 2-2. Mypay com Cost Per $1,000 of Protection For 1 Month Age Cost Under 25 $ . Mypay com 05 25 through 29 . Mypay com 06 30 through 34 . Mypay com 08 35 through 39 . Mypay com 09 40 through 44 . Mypay com 10 45 through 49 . Mypay com 15 50 through 54 . Mypay com 23 55 through 59 . Mypay com 43 60 through 64 . Mypay com 66 65 through 69 1. Mypay com 27 70 and older 2. Mypay com 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. Mypay com Example. Mypay com Tom's employer provides him with group-term life insurance coverage of $200,000. Mypay com Tom is 45 years old, is not a key employee, and pays $100 per year toward the cost of the insurance. Mypay com Tom's employer must include $170 in his wages. Mypay com The $200,000 of insurance coverage is reduced by $50,000. Mypay com The yearly cost of $150,000 of coverage is $270 ($. Mypay com 15 x 150 x 12), and is reduced by the $100 Tom pays for the insurance. Mypay com The employer includes $170 in boxes 1, 3, and 5 of Tom's Form W-2. Mypay com The employer also enters $170 in box 12 with code “C. Mypay com ” Coverage for dependents. Mypay com   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. Mypay com 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. Mypay com The cost of the insurance is determined by using Table 2-2. Mypay com Former employees. Mypay com   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. Mypay com You are not required to collect those taxes. Mypay com 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. Mypay com Report those uncollected amounts separately in box 12 of Form W-2 using codes “M” and “N. Mypay com ” See the General Instructions for Forms W-2 and W-3 and the Instructions for Form 941. Mypay com Exception for key employees. Mypay com   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. Mypay com This exception generally does not apply to church plans. Mypay com When figuring social security and Medicare taxes, you must also include the entire cost in the employees' wages. Mypay com Include the cost in boxes 1, 3, and 5 of Form W-2. Mypay com 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. Mypay com   For this purpose, the cost of the insurance is the greater of the following amounts. Mypay com The premiums you pay for the employee's insurance. Mypay com See Regulations section 1. Mypay com 79-4T(Q&A 6) for more information. Mypay com The cost you figure using Table 2-2. Mypay com   For this exclusion, a key employee during 2014 is an employee or former employee who is one of the following individuals. Mypay com See section 416(i) of the Internal Revenue Code for more information. Mypay com An officer having annual pay of more than $170,000. Mypay com An individual who for 2014 was either of the following. Mypay com A 5% owner of your business. Mypay com A 1% owner of your business whose annual pay was more than $150,000. Mypay com   A former employee who was a key employee upon retirement or separation from service is also a key employee. Mypay com   Your plan does not favor key employees as to participation if at least one of the following is true. Mypay com It benefits at least 70% of your employees. Mypay com At least 85% of the participating employees are not key employees. Mypay com It benefits employees who qualify under a set of rules you set up that do not favor key employees. Mypay com   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. Mypay com   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. Mypay com S. Mypay com 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. Mypay com   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. Mypay com Your plan does not favor key employees just because the amount of insurance you provide to your employees is uniformly related to their pay. Mypay com S corporation shareholders. Mypay com   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. Mypay com When figuring social security and Medicare taxes, you must also include the cost of this coverage in the 2% shareholder's wages. Mypay com Include the cost in boxes 1, 3, and 5 of Form W-2. Mypay com 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. Mypay com Health Savings Accounts A Health Savings Account (HSA) is an account owned by a qualified individual who is generally your employee or former employee. Mypay com Any contributions that you make to an HSA become the employee's property and cannot be withdrawn by you. Mypay com 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. Mypay com 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. Mypay com For more information about HSAs, visit the Department of Treasury's website at www. Mypay com treasury. Mypay com gov and enter “HSA” in the search box. Mypay com Eligibility. Mypay com   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. Mypay com 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. Mypay com   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. Mypay com Exceptions. Mypay com   An individual is not a qualified individual if he or she can be claimed as a dependent on another person's tax return. Mypay com 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. Mypay com 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. Mypay com For more information, see Other employee health plans in Publication 969. Mypay com Employer contributions. Mypay com   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. Mypay com 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. Mypay com   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. Mypay com 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. Mypay com No contributions can be made to an individual's HSA after he or she becomes enrolled in Medicare Part A or Part B. Mypay com Nondiscrimination rules. Mypay com    Your contribution amount to an employee's HSA must be comparable for all employees who have comparable coverage during the same period. Mypay com Otherwise, there will be an excise tax equal to 35% of the amount you contributed to all employees' HSAs. Mypay com   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. Mypay com 4980G-4. Mypay com Exception. Mypay com   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. Mypay com A highly compensated employee for 2014 is an employee who meets either of the following tests. Mypay com The employee was a 5% owner at any time during the year or the preceding year. Mypay com The employee received more than $115,000 in pay for the preceding year. Mypay com 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. Mypay com Partnerships and S corporations. Mypay com   Partners and 2% shareholders of an S corporation are not eligible for salary reduction (pre-tax) contributions to an HSA. Mypay com 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. Mypay com Cafeteria plans. Mypay com   You may contribute to an employee's HSA using a cafeteria plan and your contributions are not subject to the statutory comparability rules. Mypay com However, cafeteria plan nondiscrimination rules still apply. Mypay com For example, contributions under a cafeteria plan to employee HSAs cannot be greater for higher-paid employees than they are for lower-paid employees. Mypay com Contributions that favor lower-paid employees are not prohibited. Mypay com Reporting requirements. Mypay com   You must report your contributions to an employee's HSA in box 12 of Form W-2 using code “W. Mypay com ” 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. Mypay com 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. Mypay com It is furnished on your business premises. Mypay com It is furnished for your convenience. Mypay com The employee must accept it as a condition of employment. Mypay com Different tests may apply to lodging furnished by educational institutions. Mypay com See section 119(d) of the Internal Revenue Code for details. Mypay com The exclusion does not apply if you allow your employee to choose to receive additional pay instead of lodging. Mypay com On your business premises. Mypay com   For this exclusion, your business premises is generally your employee's place of work. Mypay com 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. Mypay com For your convenience. Mypay com   Whether or not you furnish lodging for your convenience as an employer depends on all the facts and circumstances. Mypay com 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. Mypay com This is true even if a law or an employment contract provides that the lodging is furnished as pay. Mypay com However, a written statement that the lodging is furnished for your convenience is not sufficient. Mypay com Condition of employment. Mypay com   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. Mypay com Examples include employees who must be available at all times and employees who could not perform their required duties without being furnished the lodging. Mypay com   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. Mypay com Example. Mypay com 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. Mypay com 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. Mypay com S corporation shareholders. Mypay com   For this exclusion, do not treat a 2% shareholder of an S corporation as an employee of the corporation. Mypay com 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. Mypay com 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. Mypay com Meals This section discusses the exclusion rules that apply to de minimis meals and meals on your business premises. Mypay com 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. Mypay com The exclusion applies, for example, to the following items. Mypay com Coffee, doughnuts, or soft drinks. Mypay com Occasional meals or meal money provided to enable an employee to work overtime. Mypay com However, the exclusion does not apply to meal money figured on the basis of hours worked. Mypay com Occasional parties or picnics for employees and their guests. Mypay com 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. Mypay com 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. Mypay com If food or beverages you furnish to employees qualify as a de minimis benefit, you can deduct their full cost. Mypay com The 50% limit on deductions for the cost of meals does not apply. Mypay com The deduction limit on meals is discussed in chapter 2 of Publication 535. Mypay com Employee. Mypay com   For this exclusion, treat any recipient of a de minimis meal as