Publication 15-B - Employer'S Tax Guide To Fringe Benefits - 2012 Page 10
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33Employee. For this exclusion, treat the following individu-
Example. Company A provides a dependent care as-
sistance flexible spending arrangement to its employees
als as employees.
through a cafeteria plan. In addition, it provides occasional
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A current employee.
on-site dependent care to its employees at no cost. Emily,
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an employee of company A, had $4,500 deducted from her
A leased employee who has provided services to
pay for the dependent care flexible spending arrangement.
you on a substantially full-time basis for at least a
In addition, Emily used the on-site dependent care several
year if the services are performed under your pri-
times. The fair market value of the on-site care was $700.
mary direction or control.
Emily’s Form W-2 should report $5,200 of dependent care
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Yourself (if you are a sole proprietor).
assistance in Box 10 ($4,500 flexible spending arrange-
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ment plus $700 on-site dependent care.) Boxes 1, 3, and 5
A partner who performs services for a partnership.
should include $200 (the amount in excess of the nontax-
able assistance), and applicable taxes should be withheld
Exclusion from wages. You can exclude the value of
on that amount.
benefits you provide to an employee under a dependent
care assistance program from the employee’s wages if you
Educational Assistance
reasonably believe that the employee can exclude the
benefits from gross income.
This exclusion applies to educational assistance you pro-
An employee can generally exclude from gross income
vide to employees under an educational assistance pro-
up to $5,000 of benefits received under a dependent care
gram. The exclusion also applies to graduate level
assistance program each year. This limit is reduced to
courses.
$2,500 for married employees filing separate returns.
Educational assistance means amounts you pay or in-
However, the exclusion cannot be more than the
cur for your employees’ education expenses. These ex-
smaller of the earned income of either the employee or
penses generally include the cost of books, equipment,
employee’s spouse. Special rules apply to determine the
fees, supplies, and tuition. However, these expenses do
earned income of a spouse who is either a student or not
not include the cost of a course or other education involv-
ing sports, games, or hobbies, unless the education:
able to care for himself or herself. For more information on
the earned income limit, see Publication 503.
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Has a reasonable relationship to your business, or
Exception for highly compensated employees. You
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Is required as part of a degree program.
cannot exclude dependent care assistance from the
wages of a highly compensated employee unless the ben-
Education expenses do not include the cost of tools or
efits provided under the program do not favor highly com-
supplies (other than textbooks) your employee is allowed
pensated employees and the program meets the
to keep at the end of the course. Nor do they include the
requirements described in section 129(d) of the Internal
cost of lodging, meals, or transportation.
Revenue Code.
Educational assistance program. An educational assis-
For this exclusion, a highly compensated employee for
tance program is a separate written plan that provides
2012 is an employee who meets either of the following
educational assistance only to your employees. The pro-
tests.
gram qualifies only if all of the following tests are met.
1. The employee was a 5% owner at any time during
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The program benefits employees who qualify under
the year or the preceding year.
rules set up by you that do not favor highly compen-
sated employees. To determine whether your pro-
2. The employee received more than $115,000 in pay
gram meets this test, do not consider employees
for the preceding year.
excluded from your program who are covered by a
You can choose to ignore test (2) if the employee was not
collective bargaining agreement if there is evidence
also in the top 20% of employees when ranked by pay for
that educational assistance was a subject of
the preceding year.
good-faith bargaining.
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The program does not provide more than 5% of its
Form W-2. Report the value of all dependent care assis-
benefits during the year for shareholders or owners.
tance you provide to an employee under a dependent care
A shareholder or owner is someone who owns (on
assistance program in box 10 of the employee’s Form W-2.
any day of the year) more than 5% of the stock or of
Include any amounts you cannot exclude from the em-
the capital or profits interest of your business.
ployee’s wages in boxes 1, 3, and 5. Report both the
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nontaxable portion of assistance (up to $5,000) and any
The program does not allow employees to choose to
assistance above the amount that is non-taxable to the
receive cash or other benefits that must be included
employee.
in gross income instead of educational assistance.
Page 10
Publication 15-B (2012)
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