The Value Behind Offering A Taxable Fringe Benefit
If you offer taxable fringe benefits to an employee, there is still considerable value in offering them. The cost to the employee for receiving a taxable benefit is considerably less than what it would cost the employee to pay out-of-pocket for it. For example, say you pay $1,000 toward an employee’s student loan debt. If the employee is in the 22 percent tax bracket, this benefit costs the employee $220 in income taxes and $76.50 in FICA taxes, or a total of $296.50. If the employee wanted to pay the same $1,000 out-of-pocket, they would have to earn an additional $1,425 to come out the same.
Can A Statutory Employee Contribute To A Sep
Most self-employed individuals can qualify for a SEP, also known as a Simplified Employee Pension Plan. Statutory employees are included under this category, meaning they can contribute to a SEP if their employer offers the plan, and if they meet these three requirements:
The employee is 21 or older.
The employee has worked for the employer at least 3 years out of the last 5.
The employee made at least $600 in wages within the calendar year.
A List Of Deductible Business Expenses For Schedule C
To keep your small business profitable, take every available business deduction. You will claim these on Schedule C, provided by the Internal Revenue Service, and attach it to your tax return. Don’t wait until tax time to keep track of your deductions. Also, keep receipts, documentation and electronic records to support those deductions.
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Certain Employee Benefit Payments Are Tax Deductible
You can generally deduct the cost of providing employee compensation and benefits as a business expense.
If you have employees, you are undoubtedly aware that you can claim a business expense deduction for the wages and salaries that you pay them. However, you may not be aware that other benefits that you provide can be deducted. For example, if you give your employees a discount on the cost of your goods or services, or if you provide paid holidays or vacations, then you have provided a deductible benefit.
Benefits That Are Not Exempt From Fica
While there are many benefits that can be offered to employees that are exempt from FICA tax, there are some that are not tax-deductible. For example, adoption assistance, which is tax-free to employees up to a set dollar amount each year , is still subject to FICA. Additionally, for tax years beginning after 2017 and before 2026, moving reimbursements are no longer tax-deductible, per the Tax Cuts and Jobs Act.
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Employee Benefits Can Be Taxable Or Nontaxable
The deductibility of an expense by the employer is a different issue than the taxability of the benefit to the employees.
Some types of benefits are not taxable for payroll tax purposes. These benefits are not taxable to the employee for FICA or income tax withholding purposes, and they are not taxable to you for FICA or FUTA tax purposes.
Common examples of this type of benefit are health insurance, qualified retirement plan contributions, and group-term life insurance up to $50,000. Even if the benefit is not taxable to the employee, you can still deduct the cost of providing the benefits, provided that you meet all the requirements.
The value of fringe benefits that are not tax-free under the Internal Revenue Code must be included in the employee’s taxable income. This is also true when the benefits are of a type that would be excludable if they met all the federal requirements, but for some reason, your plan does not meet the requirements.
For instance, some types of retirement plans are not permitted to discriminate in favor of highly compensated employees such as business owners. If the plans do discriminate, the value of the benefits will generally be taxable compensation to the highly compensated employees who receive them.
Again, the fact that the value of the benefit must be included in the employee’s income is a separate issue than whether you can deduct the cost of providing the benefit. The cost of the benefit is still deductible by you.
Get Help With Small Business Tax Deductions
Have questions about deductions and other small business tax issues? Rely on our team of small business certified tax pros to get your taxes right and keep your business on track. Find out how Block Advisors can help with your small business taxes.
Our small business tax professional certification is awarded by Block Advisors, a part of H& R Block, based upon successful completion of proprietary training. Our Block Advisors small business services are available at participating Block Advisors and H& R Block offices nationwide.
Donating household goods to your favorite charity? Learn the ins and outs of deducting noncash charitable contributions on your taxes with the experts at H& R Block.
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Guidelines For Pay Annual Leave And Sick Leave
Pay and Pay Periods
The FDICâs compensation table and pay setting practices can be found by visiting âEmployee Benefitsâ. If you have been offered a position at the FDIC, your annual salary is included in your official offer letter. The USDAâs National Finance Center provides FDIC with payroll services. Your salary will be paid by direct deposit every two weeks . Access the current yearâs pay period calendar.
Annual and Sick Leave
Employees of the Federal government are entitled to both annual and sick leave. Bi-weekly accruals of annual and sick leave are based on the individualâs tenure in Federal service and employment type . Please refer to the chart below for more information on annual leave accrual.
Tax Savings With Section 125 Hra And Hsa Plans
A fringe benefit is non-monetary compensation for work. Fringe benefits can be provided by the business to employees, independent contractors, partners, and even to the owners.
Some fringe benefits are taxable to the recipient, but many have tax advantages over monetary compensation. Fringe benefits can be tax-free or partly tax-free, or they can defer taxes. Some fringe benefits, such as for health insurance, can even be free of employment taxes. Some fringe benefits can also offer reduced costs even if they are taxable, by taking advantage of group rates, such as life insurance that has a benefit greater than $50,000.
Fringe benefit taxation also depends on the business entity providing them. Owners of a sole proprietorship or a pass-through entity, including 2% shareholders of S corporations, are not considered employees, so they can receive benefits, but they do not have the tax advantages that they may have for rank-and-file employees.
While tax advantaged fringe benefits can be offered by a sole proprietorship, partnership, limited liability company, or S corporation to its employees, a C corporation can offer several more benefits that have tax advantages that are not available to the other entities. Moreover, owners of a C corporation can receive the same benefits with the same tax advantages that can be offered to the rank-and-file employees. Fringe benefits include:
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Choose A Defined Benefit Plan
Defined benefit plans provide a fixed, pre-established benefit for employees at retirement. Employees often value the fixed benefit provided by this type of plan. On the employer side, businesses can generally contribute more each year than in defined contribution plans. However, defined benefit plans are often more complex and, thus, more costly to establish and maintain than other types of plans.
If you establish a defined benefit plan, you:
- Can have other retirement plans
- Can be a business of any size
- Need to annually file a Form 5500 with a Schedule SB
- Have an enrolled actuary determine the funding levels and sign the Schedule SB
- Cant retroactively decrease benefits
Common And Commonly Overlooked Tax Deductions
Even experienced small-business owners can face financial challenges at some point during the lifetime of their company. One way to help offset costs is by uncovering qualifying business tax deductions. Companies leave billions of tax credit dollars unclaimed each year due to not knowing they qualified, or not having the experience or time to handle the administration involved. To help remedy this, it’s important to be aware of which ones you qualify for as well as the requirements for eligibility. You may not know it, but there could be money out there waiting for your business to claim in time for tax filing season.
Here are some common tax deductions that are available to qualifying businesses:
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What Does Statutory Employee Mean
A statutory employee is defined by the law as an employee who works for a business, but the employer is not required to withhold taxes from their earnings. However, the employer is required to withhold Medicare and Social Security tax from their wages.
This type of employee is usually considered to be someone with less control over their work than an independent contractor, but with more freedom over their work than a common law employee. They are somewhat like an independent contractor who is treated as an employee in regards to certain tax withholdings.
Statutory employees can also deduct work-related expenses on an IRS Schedule C form instead of a Schedule A form. Expenses reported on a Schedule C form do not have the same 2 percent adjusted gross income threshold as a Schedule A form. This allows the statutory employee a larger tax deduction of business expenses compared to those who use a Schedule A form.
A statutory employee must agree to this standing with their employer upon being hired. The employee will need to sign a service contract. This type of employee should not be confused with a statutory nonemployee, a category which includes direct sellers and real estate agents.
Can Self Employed Workers Take The Standard Deduction
The self-employed can take the standard deduction on Form 1040 and still deduct their business expenses on Schedule C. The standard deduction lets taxpayers lower their tax burden by deducting a standard amount set by the IRS from their taxable income.
In 2018, the standard deduction set by the IRS is as follows:
- For married people filing jointly: $13,000
- For single people and married people filing separately: $6,500
- For heads of households: $9,550
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Employee Wages Tax Deduction
Many successful sole proprietors reach a point when they can no longer do everything on their own. To continue to grow, often times solo entrepreneurs will hire employees to assist with the workload. While contractors and employees may carry out similar tasks, a key distinction between independent contractors and employees is that you have control over what your employees do and how they carry out their job. In addition to paying wages, hiring an employee comes with some additional responsibilities including paying employer payroll taxes and filing related reports. The good news is employee wages will almost always be a deductible business expense on your Schedule C.
Khan is an artist who makes silver and turquoise jewelry he sells through Etsy. During the year, Khan withdrew $45,000 from his business bank account as compensation for his work. Since Khan is an unincorporated sole proprietor, the amounts he paid himself would not be a deductible business expense. To deduct his personal compensation, Khan would need to have his business organized as an entity where he could be an employee of the company or take guaranteed payments .
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Business Taxes And Licenses
Self-employed workers can deduct the cost of their business taxes and professional licenses. For example, if you have employees and pay FICA taxes, you can deduct those expenses. Or, if you pay for state or local licenses to register your business, you can write off the cost on your income tax filing.
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Schedule C Reporting New Information For Trustees And Plan Employees
The Department of Labors Employee Benefits Security Administration published supplemental FAQs to provide further guidance in response to additional questions from plans and service providers on the requirements for reporting other compensation on the Schedule C of the Form 5500 Annual Return/Report of Employee Benefit Plan. Additional guidance pertaining to trustee and plan employee expense reimbursement was posted on the DOLs website on October 14, 2010.
In response to questions where a plan trustee or employee receives reimbursement from the plan for expenses associated with travel and meals while attending educational conferences, trustees meetings, and business meetings, the Department has determined such expenses would be reportable on Schedule C.
Disbursements to a plan trustee or plan employee for transportation, hotels, meals, and similar expenses incurred by the plan trustee or plan employee for goods and services or other things of value furnished to him or her while engaged in official plan business and paid or reimbursed by the plan are reportable compensation for purposes of the Schedule C. In addition, cash gifts and personal expenses paid by the plan to or for the plan trustee, whether paid directly through prepayment or use of credit cards or other credit arrangement, and non-cash gifts are reportable compensation for purposes of the Schedule C.
By Bob Cann, CPA, Partner,
Guidance On Schedule C Reporting
Increased Focus on Fee Disclosure: EFAST-2 brought significant changes to Form 5500. This Q& A discusses Schedule C changes, most notably the concept of indirect compensation and reporting thresholds. Year later, questions persist. Below are a series of FAQs addressing reporting and measurement issues related to Form 5500 Schedule C.
Q1: What is the purpose of this FAQ guidance?On November 16, 2007, the Department of Labors Employee Benefits Security Administration published final form revisions and a final regulation, generally effective for plan years beginning on or after January 1, 2009, providing new requirements for reporting service provider fees and other compensation on the Schedule C of the 2009 Form 5500 Annual Return/Report of Employee Benefit Plan. The purpose of these FAQs is to provide guidance to plan administrators and service providers on complying with the requirements of the 2009 Form 5500 Schedule C. Questions concerning this guidance may be directed to EBSAs Office of Regulations and Interpretations at 202.693.8523.
Q14: What is an example of fees that are required to be broken out regardless of whether they are part of a bundle?The Schedule C instructions include a general rule that, in the case of bundled service arrangements, revenue sharing within the bundled group generally does not need to be separately reported, with two exceptions.
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What Should I Do If The Information Is Incorrect On The Form 1095
- For Form 1095-C: Call the contact telephone number listed on Line 10 of the form.
- For Form 1095-B: Call the contact telephone number listed on Line 18 of the form.
- Retiree and continuation coverage subscribers of state agencies, commodity commissions, or higher education institutions may contact PEBB Customer Service at 1-800-200-1004.But, retirees of school districts or employer groups should contact their former employer directly. Their contact number should be included on the 1095.
Benefits That Are Exempt From Fica
Two of the most popular tax-exempt employee benefits health insurance and employer contributions to qualified retirement plans are not subject to FICA. But these aren’t the only benefits that can be offered free from FICA tax. Per the Internal Revenue Service , tax-deductible employee benefits include:
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Special Concerns For S Corporation Owner
While shareholders of S corporations who work in their companies are employees, they cannot enjoy the same benefits in all cases. Here are some exceptions that apply to shareholders owning more than 2 percent of the stock:
- Achievement awards are not tax-free to the shareholder-employees and are not exempt from FICA.
- Group-term life insurance cannot be used as a tax-free fringe benefit to owner-employees. They are treated as a partner in a partnership for purposes of this fringe benefit. Thus, the benefit is treated as taxable compensation subject to FICA.
- Health insurance must be included in a shareholder-employee’s compensation. They can deduct the premiums as an adjustment to gross income on Form 1040. However, the coverage is exempt from FICA.
- Health savings account contributions are treated as distributions.
- Meals and lodging for an owner-employee on company premises are not tax-free benefits.
- Moving reimbursements are not tax-free benefits exempt from FICA.
- Transit passes treated as tax-free are capped at $21 per month. If the cost exceeds $21, then the full amount is taxable.
Employee Wages And Contract Labor
All of the wages you pay to employees are fully deductible. Also, if you hire temporary workers as independent contractors, you can write this off as an expense. Keep all of your agreements and invoices from the temporary employment agencies you use. This will support your claim for the deduction if the IRS questions it.