Publication 15-B Employer'S Tax Guide To Fringe Benefits

Cost Per $1,000 of Protection

The exclusion does not apply if you allow your employee

For One Month

to choose to receive additional pay instead of lodging.

On your business premises. For this exclusion, your

Age

Cost

business premises is generally your employee’s place of

Under 25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .05

work. (For special rules that apply to lodging furnished in a

25 through 29 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

.06

camp located in a foreign country, see section 119(c) of the

30 through 34 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

.08

Internal Revenue Code and its regulations.)

35 through 39 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

.09

40 through 44 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

.10

For your convenience. Whether or not you furnish lodg-

45 through 49 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

.15

ing for your convenience as an employer depends on all

50 through 54 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

.23

the facts and circumstances. You furnish the lodging to

55 through 59 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

.43

your employee for your convenience if you do this for a

60 through 64 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

.66

substantial business reason other than to provide the em-

65 through 69 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.27

ployee with additional pay. This is true even if a law or an

70 and older . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.06

employment contract provides that the lodging is furnished

You figure the total cost to include in the employee’s

as pay. However, a written statement that the lodging is

wages by multiplying the monthly cost by the number of full

furnished for your convenience is not sufficient.

months’ coverage at that cost.

Condition of employment. Lodging meets this test if you

require your employees to accept the lodging because

Example. Tom’s employer provides him with

they need to live on your business premises to be able to

group-term life insurance coverage of $200,000. Tom is 45

properly perform their duties. Examples include employ-

years old, is not a key employee, and pays $100 per year

ees who must be available at all times and employees who

toward the cost of the insurance. Tom’s employer must

could not perform their required duties without being fur-

include $170 in his wages. The total cost of the insurance,

$360 ($.15 × 200 × 12), is reduced by the cost of $50,000 of

nished the lodging.

coverage, $90 ($.15 × 50 × 12), and by the $100 Tom pays

It does not matter whether you must furnish the lodging

as pay under the terms of an employment contract or a law

for the insurance. The employer includes $170 in boxes 1,

fixing the terms of employment.

3, and 5 of Tom’s Form W-2. The employer also enters

$170 in box 12 with code C.

Example. A hospital gives Joan, an employee of the

Coverage for dependents. Group-term life insurance

hospital, the choice of living at the hospital free of charge or

coverage paid by the employer for the spouse or depen-

living elsewhere and receiving a cash allowance in addition

dents of an employee may be excludable from income as a

to her regular salary. If Joan chooses to live at the hospital,

de minimis fringe benefit (see page 6). The part of this

the hospital cannot exclude the value of the lodging from

coverage that the employee paid on an after-tax basis is

her wages because she is not required to live at the

also excludable from income. For this purpose, the cost is

hospital to properly perform the duties of her employment.

figured using the monthly cost table above.

S corporation shareholder-employee. For this exclu-

Former employees. For group-term life insurance over

sion, do not treat a 2% shareholder of an S corporation as

$50,000 provided to former employees (including retirees),

an employee of the corporation. A 2% shareholder is

the former employees must pay the employee’s share of

someone who directly or indirectly owns (at any time dur-

social security and Medicare taxes with their income tax

ing the year) more than 2% of the corporation’s stock or

returns. You are not required to collect those taxes. Use

stock with more than 2% of the voting power.

the table above to determine the amount of social security

and Medicare taxes owed by the former employee for

Meals

coverage provided after separation from service. Report

those uncollected amounts separately in box 12 on Form

This section discusses the exclusion rules that apply to de

W-2 using codes M and N. See the Instructions for

minimis meals and meals on your business premises.

Forms W-2 and W-3.

Lodging on Your Business Premises

De Minimis Meals

You can exclude the value of lodging that you furnish to an

This exclusion applies to any meal or meal money that you

employee from the employee’s wages if it meets the follow-

provide to an employee if it has so little value (taking into

ing tests.

account how frequently you provide meals to your employ-

ees) that accounting for it would be unreasonable or ad-

•

It is furnished on your business premises.

ministratively impracticable. The exclusion applies, for

•

It is furnished for your convenience.

example, to the following items.

•

The employee must accept it as a condition of em-

Coffee, doughnuts, or soft drinks.

ployment.

•

Occasional meals or meal money provided to enable

Different tests may apply to lodging furnished by educa-

an employee to work overtime. (However, the exclu-

tional institutions. See section 119(d) of the Internal Reve-

sion does not apply to meal money figured on the

nue Code for details.

basis of hours worked.)

Page 11

Publication 15-B Employer'S Tax Guide To Fringe Benefits - 2003 Page 11

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