Here are answers to questions put to representatives of the IRS who attended the AmericanAssociation’s 33rd Annual Congress, held this year in Las Vegas.
Business expenses or taxable ?
Question: Included in a new manager’s employment contract is a provision requiring us to reimburse him for up to nine months of interim living expenses, capped at $3,000 a month. He turns in receipts for his hotel and other expenses. Can we treat his expenses as travel expenses paid under an accountable plan? Or are the expenses not taxable because they’re part of an employment contract?
Answer: The employee is incurring nondeductible personal living expenses. The expenses, therefore, are taxable fringe benefits. This isn’t business travel away from home overnight because he’s not away from his tax home—the place where he regularly works.
Question: We are considering providing employees with $100 a month to cover the cost of their personal cellphones used for business purposes. Would this be taxable income?
Answer: Yes, because you’re not requiring employees to substantiate the business use of the phones. If, on the other hand, you had a plan or policy that required employees to use their cellphones for business, you could reimburse them for their monthly phone and data charges.
Any changes for W-2 reporting for 2015?
Question: Are all employers now required to report health insurance on employees’ W-2s in Box 12 with Code DD, or is it only mandated for employers with 50 or more full-time employees?
Answer: The transition relief that’s been in effect for some years continues to apply; only employers that filed at least 250 W-2s for the 2014 tax year need to report health insurance on employees’ W-2s. The 50-full-time-employee filing mandate applies to Forms 1095-C/1094-C, which are filed to report offers of health insurance.
Cash is king, but is it taxable?
Question: Our company wants to offer $50 in cash to employees who carpool to work. What conditions would we need to impose to make this a nontaxable?
Answer: There are no conditions you can impose to keep this from becoming a taxable fringe benefit. Cash is always taxable.
Question: Do we need to gross-up a $25 gift card awarded to a terminated employee who completed an online exit interview after he terminated?
Answer: Yes. Gift cards are cash equivalents and they have a value; $25 isn’t a trivial amount.