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

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Contributions to Archer MSAs (discussed in Publi-

health benefits that you provide to the employee in the

cation 969, Medical Savings Accounts (MSAs)).

employee’s wages subject to Federal income tax withhold-

ing. However, you can exclude the value of these benefits

This exclusion also applies to payments that you make

(other than payments for specific injuries or illnesses) from

(directly or indirectly) to an employee under an accident or

the employee’s wages subject to social security, Medicare,

health plan for employees that are either of the following:

and Federal unemployment (FUTA) taxes.

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Payments or reimbursements of medical expenses.

Exception for highly compensated employees. If

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your plan is a self-insured medical reimbursement plan

Payments for specific injuries or illnesses (such as

that favors highly compensated employees, you must in-

the loss of the use of an arm or leg). The payments

clude all or part of the amounts you pay to these employ-

must be figured without regard to any period of ab-

ees in their wages subject to Federal income tax

sence from work.

withholding. However, you can exclude these amounts

(other than payments for specific injuries or illnesses) from

Accident or health plan. This is an arrangement that

the employee’s wages subject to social security, Medicare,

provides benefits for your employees, their spouses, and

and Federal unemployment (FUTA) taxes.

their dependents in the event of personal injury or sick-

A self-insured plan is a plan that reimburses your em-

ness. The plan may be insured or noninsured and does not

ployees for medical expenses not covered by an accident

need to be in writing.

or health insurance policy.

A highly compensated employee for this exception is

Employee. For this exclusion, treat the following individu-

any of the following individuals.

als as employees.

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One of the five highest paid officers.

A current common-law employee.

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An employee who owns (directly or indirectly) more

A full-time life insurance agent who is a current stat-

than 10% in value of the employer’s stock.

utory employee.

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An employee who is among the highest paid 25% of

A retired employee.

all employees (other than those who can be ex-

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A former employee that you maintain coverage for

cluded from the plan).

based on the employment relationship.

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For more information on this exception, see section

A widow or widower of an individual who died while

105(h) of the Internal Revenue Code and its regulations.

an employee.

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A widow or widower of a retired employee.

Achievement Awards

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For the exclusion of contributions to an accident or

health plan, a leased employee who has provided

This exclusion applies to the value of any tangible personal

services to you on a substantially full-time basis for

property that you give to an employee as an award for

at least a year if the services are performed under

either length of service or safety achievement. The

your primary direction or control.

exclusion does not apply to awards of cash, cash

equivalents, gift certificates, or other intangible property

Exception for S corporation shareholders. Do not

such as vacations, meals, lodging, tickets to theater or

treat a 2% shareholder of an S corporation as an employee

sporting events, stocks, bonds, and other securities. The

of the corporation for this purpose. A 2% shareholder is

award must meet the requirements for employee achieve-

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

ment awards discussed in chapter 2 of Publication 535,

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

Business Expenses.

stock with more than 2% of the voting power.

Employee. For this exclusion, treat the following individu-

Exclusion from wages. You can generally exclude the

als as employees.

value of accident or health benefits that you provide to an

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employee from the employee’s wages.

A current employee.

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A former common-law employee that you maintain

Exception for certain long-term care benefits. You

cannot exclude contributions to the cost of long-term care

coverage for in consideration of or based on an

agreement relating to prior service as an employee.

insurance from an employee’s wages subject to Federal

income tax withholding if the coverage is provided through

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A leased employee who has provided services to

a flexible spending or similar arrangement. This is a benefit

you on a substantially full-time basis for at least a

program that reimburses specified expenses up to a maxi-

year if the services are performed under your pri-

mum amount that is reasonably available to the employee

mary direction or control.

and is less than 5 times the total cost of the insurance.

However, you can exclude these contributions from the

Exception for S corporation shareholders. Do not

employee’s wages subject to social security, Medicare,

treat a 2% shareholder of an S corporation as an employee

and Federal unemployment (FUTA) taxes.

of the corporation. A 2% shareholder is someone who

directly or indirectly owns (at any time during the year)

S corporation shareholders. Because you cannot

more than 2% of the corporation’s stock or stock with

treat a 2% shareholder of an S corporation as an employee

for this exclusion, you must include the value of accident or

more than 2% of the voting power.

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Publication 15-B Employer'S Tax Guide To Fringe Benefits - 2003 Page 5

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