Detailing Transportation Fringe Benefits · Qualified Transportation Fringe Benefit 14 Applies to:...

©2018 The Payroll Advisor1

Detailing Transportation Fringe Benefits

Presented live on Wednesday, March 28, 2018

©2016 The Payroll Advisor 2

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OurFocusforToday


v Section 132 Transportation Fringe Benefits

v Paying and taxing auto allowances correctly

v Calculating Personal Use of Company Vehicle

v Calculating Personal Use of a Company Aircraft


WhattheFutureMayHold

u Rather than repeal tax-free status of other fringe benefits it shifts the tax burden to employers by reducing or repealing the business deduction for the benefits listed below:


TaxCutsandJobsActof2017


v Publication 15-B states that the taxation does not change for the benefits

v However, the employer does not get the deduction on their corporate taxes

v May require additional tracking by payrollv Business may decide to preserve the

deduction by taxing as wages if neededv Caution: some states/cities require that

you offer transportation fringe benefits in cafeteria or nontaxable plan

Section132TransportationFringeBenefits

©2017 The Payroll Advisor

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v Benefits provided to employees for their personal transportation such as commuting to and from work

v 2 categoriesv De minimis transportation

benefitsv Qualified transportation benefits

DeMinimisTransportationBenefit


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v Transportation benefit that has so little value that accounting is impractical

v Must be occasional-reasonable-not based on hours worked

v Value excluded from wagesv Example: occasional fare given to

employee who is working late

TransportationFringeBenefits


Local commuting transportation fare provided to an employee by an employer on an occasional basis and to enable to the employee to work overtime may be excluded as a de minimis fringe benefit

UnusualCircumstancesandUnsafeConditions


v Local transportation for commuting provided to an employee by an employer because of unusual circumstances and unsafe conditions is taxable to the employee as wages at the rate of $1.50 each way

v Any additional value is excludablev Unusual circumstances include such times as

when an employee is temporarily working outside his normal hours or has a shift change

UnusualCircumstancesandUnsafeConditions


v Unsafe conditions determined by a history of crime in the geographic area surround the employee’s workplace or residence and the time of day during which the employee must commute

v Must be a qualified employee to use this special rule: paid hourly, <$120,000/year, subject to OT

v Must have certain conditions met to use this rule

v Walks or uses public transportation for commutingv Transportation only for commuting for unsafe

reasons

QualifiedTransportationFringeBenefit

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Applies to:1. A ride in a commuter highway vehicle

between the employee’s home and work place

2. A transit pass3. Qualified parking

Exclusion applies whether you provide only one or a combination of these benefits


ProvidingBenefits


v Can be provided directly by employer or through reimbursement arrangementvVoucher or similar item not

available? Can do cash in that type of instance

v If value is over limit then include amount over limit in wages

TransitPasses


v Any pass, token, farecard, voucher or similar item entitling a person to ride on mass transit and includes bus, rail or ferry

v May be publically or privately provided

v 2018 - $260 per month may be excluded from wages

v States may be different

TransitPasses


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v If sold at discount the discounted price rather than the face amount can be used to determine the exclusion so long as discounted price is available to the public

v Example: 10 tickets cost $17.50 if purchased separately but are sold in a packet of 10 for $15. This is offered to the general public so $15 counts against the annual or monthly minimum exclusion

TransitPasses


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u Use of electronic media to provide tax-free transportation fringe benefits. The IRS issued a revenue ruling in 2006 (Rev Rul 2006-57, 2006-47 IRB 911), which was not effective until Jan. 1, 2012, that explains how employers can use smart cards or debit cards to provide excluded transportation fringes to employees with a minimum of paperwork. Under the ruling, the following situations are acceptable ways to set up a simplified transit pass reimbursement system that will be tax-free for income, payroll, and withholding taxes: A transit system's smart cards are plastic cards that store certain information including the card's serial number and the value of the fare media stored on the card. The amount stored as fare media on the smart card can't be used to buy anything other than fare media for the transit system. The employer makes monthly payments to the transit system for its employees who participate in the transportation benefit program, which the transit system then electronically allocates to each employee's smart card as instructed by the employer.

u A company provides debit cards that are restricted for use only at merchant terminals at points of sale at which only fare media for the city transit system is sold. The employer makes monthly payments to the company on behalf of its employees who participate in the transportation benefit program, which the company then electronically allocates to each employee's terminal-restricted debit card as instructed by the employer [Rev Rul 2006-57, 2006-47 IRB 911].

u Observation. In each of the above situations, assuming the amount "loaded" on the smart card or debit card does not exceed the monthly maximum (e.g., $255 per month for the 2016 and 2017 tax years), the fringe benefit is excluded even though employees aren't required to substantiate their use of the cards. That's because the cards can only be used to buy transit system rides.

TransitPasses


v No substantiation requirements if the employer distributes the transit passes themselves

v Cash reimbursements are only nontaxable if no voucher or similar item is readily available for direct distribution to employees

v Example 1: Fred buys a transit pass for $100 each month. At the end of the month he presents it to his employer and is reimbursed the $100—bona fide reimbursement arrangement and is excluded from income

TransitPasses


Example 2: Larry purchases a monthly transit pass for $100 but presents it to the employer at the beginning of the month. He certifies he purchased it and will use it during the month. The employer reimburses Larry at the time he presents the transit pass. Bona fide reimbursement arrangement is established and the reimbursement is excluded from income

TheStates


21u States may follow federal or not—for example:

u CA: California does not conform to the transit

pass provision in the “Tax Increase Prevention

Act of 2014,'' which retroactively increased the

monthly amount from $130 to $250 for 2014.

However, these benefits are excluded from

California gross income (ridesharing) and there

are no monthly limits for the exclusion.

u MA: $135 per month for transit passes for 2017

QualifiedParking


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v Parking provided to employees on or near employer’s business premises

v Includes parking on or near location where employees commute using mass transit or car pools

v 2018 - $260 per month

CommuterHighwayVehicle


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v Seats at least 6 adults not including driver

v 80% of mileage for commuting

v Employees in at least half the seats

BicycleCommuting


24v No longer tax exempt under new tax bill

AutoReimbursements


v Falls under Per Diems and Accountable Plans

v 2018 per diem rate:54.5 cents per mile

v Under an accountable plan you:1. Must have a log2. Must list all requirements

1. Nature of trip2. Actual Mileage

v Auto allowances fall under same rule

BusinessUsePersonalVehicle


v Acme Tile Company has 20 employees on its sales staff

v Each sales person must call on 20 to 30 customers per week

v Sales staff uses their own personal vehicles to make these calls

v Paid $500 per month on 15th of the previous month thru A/P

BusinessUsePersonalVehicle—Example1JohnLevy


July he submits his auto log for the month of June. John logged 1,384.9 miles.

# of miles times current per diem rate or…

Using the 2018 IRS standard mileage rate of 54.5 cents, his calculation would be done as follows: 1,268.8 x $.545 = $697.50

Since $697.50 exceeds the $500 payment, nothing needs to be reported to payroll.

BusinessUsePersonalVehicle—2nd Example2JoeBumble


July he also submits his log. But Joe spent the majority of his time in June at Acme’s two biggest The total mileage for his log is only 322.6 miles. But his payment exceeded the federal limits as we show the calculation as follows:

322.6 x $.545 = $175.82

Since $175.82 is less than the monthly payment of $500, the difference will be taxable to the employee.

Therefore, accounts payable must submit $324.18 ($500.00 – $175.82) to the payroll department as taxable income for July.

Example3:TotallyTaxable


v Acme does not require its sales staff to submit logs or any backup for the auto allowance that is paid each month

v That is a nonaccountable plan under IRS rules—no paperwork

v Therefore the entire $500 per each sales staff member is taxable income for that month and must be reported to payroll

PersonalUseofaCompanyVehicle


v Fully taxablev Vehicle may qualify as nontaxablev 4 methods of determining taxation

vGeneral ValuationvAnnual Lease ValuevCents per milevCommuting

NontaxableVehicles


v Working condition fringev De minimis benefitv Qualified non-personal use vehiclev Special rules for auto dealerships

ValuingtheVehicle


v Fair Market Value (FMV) determined as the price a person pays to purchase the vehicle at an “arm’s length” transaction

v Used car may use “Blue Book”v Fleet averaging is available if 20 cars or morev Leased cars are valued by either the

manufacturer’s suggested retail price minus 8% or manufacturer’s invoice price plus 4%

v FMV is as of the date the vehicle is first made available to the employee

GeneralValuationMethod


v Most liberalv Any employeev All use taxablev Employee deducts business

use on personal taxesv 2% AGI is a problemv More taxes as well

AnnualLeaseValueMethod


v Must be consistent in using method

v Need value of vehiclev Need vehicle use logv Use annual lease value tablev Must use for 4 years or until car is

transferredv Prorate if less than full year



v Annual lease value table includes the value of maintenance and insurance for the automobile

v Do not reduce the amount of the table for the value of the services if you do not provide them

v Does not include fuel



v The value of fuel must be included separately in the employee’s wages

v May use fair market value or 5.5 cents per mile

v Do not have to include the value of a telephone or specialized equipment if the equipment is necessary for the business

AnnualLeaseValueExample


$18,000 vehicle driven 14,741 miles. 1,540 were for personal use:

AnnualLeaseValueExampleCalculations


Formula is:Personal use miles divided by total

miles = percentage of personal use

Percentage of personal use times value on chart = taxable income

AnnualLeaseValueExampleCalculations


1,540 miles/14,741 miles = 10.44%

Table value of vehicle = $5,100

$5,100 x 10.44% = $532.44 taxable income

CentsPerMileMethod


v Vehicle must be under $15,600 for 2018

v $17,600 for trucks or cars on truck chassis including SUVs

v Must have logv Driven over 10,000 miles in

calendar year and used primarily by employee

v $.545 per mile for 2018

CentsPerMileMethod


Formula is:# of personal use miles x IRS current per diem rate = taxable wages

Example:1,540 miles x $.545 = $839.30

CentsPerMileMethod


v Includes the value of maintenance and insurance

v Do not reduce the rate if you do not provide

v If you do not provide fuel you can reduce the rate by 5.5 cents per mile

v If employee pays for gas then charge 49¢ per mile

CommutingMethod


v Don’t need value of vehiclev Need only know how many

days employee drove vehiclev Restricted by employeev $1.50 each way--$3.00 per day

CommutingMethod


Formula is as follows:# of days driven times $3 per day

Or# of one way trips times $1.50

Drove 280 days taxable income280 x $3 = $840

CommutingMethod


Vehicle is provided to the employee for use in trade or business or for other bona fide non-compensatory business reasons and employee is required to commute in the vehicle

CommutingMethod


v Written policy in effect, which prohibits the employee from using the vehicle for personal purposes other than commuting

v Cannot be a control employee

PersonalUseofCompanyAircraft


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v Taxable under section 61 of the IRC

v Can determine value by two methods:

1. General valuation rule2. Non-commercial flight

valuation rule

GeneralValuationMethod


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Amount individual would pay at an arm’s length transaction to charter a comparable aircraft and pilot for a comparable flight

If more than one employee on flight—allocate among employees

Non-commercialFlightValuationRule


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v Section 1.61-21(g) of the Income Tax Regulations provides rule for valuing noncommercial flights on employer-provided aircraft

v Section 1.61-21(g)(5) provides an aircraft valuation formula to determine the value of such flights.

v The value of a flight is determined under the base aircraft valuation formula--the Standard Industry Fare Level formula or SIFL

Formula


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Multiply the SIFL cents-per-mile rates applicable for the period during which the flight was taken by the appropriate aircraft multiple provided by IRS and then add the applicable terminal charge.

Formula


The SIFL cents-per-mile rates in the formula and the terminal charge are calculated by the Department of Transportation and are reviewed semi-annually.

Formula


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Step 1 • SILF x mileage

Step 2 • Step 1 x Aircraft multiplier

Step 3 • Add in Terminal Charge

Chart1:ChargesandRates


Period Terminal Charge SIFL Mileage rates1-1-18 to 6-30-18 $41.71 Up to 500 miles $0.2282

501-1500 miles $0.1740Over 1500 miles $0.1673

Period Certified Takeoff Weight of Aircraft

Control Employee Non-Control Employee

1-1-18 to 6-30-18 6,000 lbs. or less 62.5% 15.6%6,001 – 10,000 lbs. 125% 23.4%10,001 – 25,000 lbs. 300% 31.3%25,001 lbs. or more 400% 31.3%

ExamplewithCalculations


Zelda is a non-control employee and the plane has a certified takeoff weight of 26,000 pounds. Zelda flies from Charleston SC to Las Vegas, NV (1,735 miles nautical miles)

Use the internet or ask the aircraft company for the mileage—must be nautical or air miles



v Step 1: Calculate the mileage itself on 1,735:

v 500 x .2282 = $114.10v 1000 x .1740 = $174.00v 235 x .1673 = $39.32



Step 2: Total the miles calculation then multiple by the type of employee percentage based on the aircraft weight of 26,000 and a non-control employee



v $114.10 + $174.00 + $39.32 = $327.42v $327.42 x 31.3% = $102.48



Step 3: Add in the terminal charge and that is the taxable wages for one way—double if round trip

v $102.48+ $41.71 = $144.19 one way

MixingBusinessandPersonal


v If employee taking both business and personal flights on the same trip break out the personal miles then do the calculations

v For Example: The employee flew from New York to Los Angeles with a quick flight to San Diego from Los Angeles for personal reasons

Only the miles to San Diego and back are taxable as personal miles

Questions


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Ascentis Payroll is a Web-based, Internet payroll system that allows you to process payroll in real-time, ensuring 100% accuracy, flexibility and control. With live processing and instantaneous auditing, Ascentis Payroll software can reduce payroll processing time by as much as 30%.

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