Understanding Healthcare Employment Benefits that are NOT Taxed at Full Economic Value

Posted on July 10, 2014 by Dr. David Edward Marcinko MBA MEd CMP™

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On Entirely Legal AUTOMOBILE Employment Fringe Benefit Strategies 

[By Perry Dalessio CPA]

perry-dalessio-cpaWhen an employment fringe benefit does not qualify for exclusion under a specific statute or regulation, the benefit is considered taxable to the recipient.  It is included in wages for withholding and employment-tax purposes, at the excess of its fair market value over any amount paid by the employee for the benefit.

Examples:

For example, hospitals often provide automobiles for use by employees. Treasury regulations exclude from income the value of the following types of vehicles’ use by an employee:

  • Vehicles not available for the personal use of an employee by reason of a written policy statement of the employer
  • Vehicles not available to an employee for personal use other than commuting (although in this case commuting is includable)
  • Vehicles used in connection with the business of farming [in which case the exclusion is equal to the value of an arbitrary 75% of the total availability for use, and the value of the balance may be includable or excludable, depending upon the facts (Treas. Regs. § 1.132-5(g)) involved)]
  • Certain vehicles identified in the regulations as “qualified non-personal-use vehicles,” which by reason of their design do not lend themselves to more than a de minimus amount of personal use by an employee [examples are ambulances and hearses].
  • Vehicles provided for qualified automobile demonstration use
  • Vehicles provided for product testing and evaluation by an employee outside the employer’s work place

If the employer-provided vehicle does not fall into one of the excluded categories, then the employee is required to report his personal use as a taxable benefit. The value of the availability for personal use may be determined under one of several approaches.

jag346_SWHT

Assessment

Under any of the approaches, the after-tax cost to the employee is substantially less than if the employee used his or her own dollars to purchase the automobile and then deducted a portion of the cost as a business expense.

Conclusion

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