Publication 15-B - Employer'S Tax Guide To Fringe Benefits - 2012 Page 8
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33•
An employee who is among the highest paid 25% of
awards that are not “qualified plan awards”). See chapter 2
all employees (other than those who can be ex-
of Publication 535 for more information about the limit on
cluded from the plan).
deductions for employee achievement awards.
To determine for 2012 whether an achievement
For more information on this exception, see section
!
award is a “qualified plan award” under the de-
105(h) of the Internal Revenue Code and its regulations.
duction rules described in Publication 535, treat
CAUTION
COBRA premiums. The exclusion for accident and
any employee who received more than $115,000 in pay for
health benefits applies to amounts you pay to maintain
2011 as a highly compensated employee.
medical coverage for a current or former employee under
If the cost of awards given to an employee is more than
the Combined Omnibus Budget Reconciliation Act of 1986
your allowable deduction, include in the employee’s wages
(COBRA). The exclusion applies regardless of the length
the larger of the following amounts.
of employment, whether you directly pay the premiums or
•
The part of the cost that is more than your allowable
reimburse the former employee for premiums paid, and
deduction (up to the value of the awards).
whether the employee’s separation is permanent or tem-
porary.
•
The amount by which the value of the awards ex-
ceeds your allowable deduction.
Achievement Awards
Exclude the remaining value of the awards from the em-
ployee’s wages.
This exclusion applies to the value of any tangible personal
property you give to an employee as an award for either
length of service or safety achievement. The exclusion
Adoption Assistance
does not apply to awards of cash, cash equivalents, gift
certificates, or other intangible property such as vacations,
An adoption assistance program is a separate written plan
meals, lodging, tickets to theater or sporting events,
of an employer that meets all of the following requirements.
stocks, bonds, and other securities. The award must meet
1. It benefits employees who qualify under rules set up
the requirements for employee achievement awards dis-
by you, which do not favor highly compensated em-
cussed in chapter 2 of Publication 535, Business Ex-
ployees or their dependents. To determine whether
penses.
your plan meets this test, do not consider employees
excluded from your plan who are covered by a col-
Employee. For this exclusion, treat the following individu-
lective bargaining agreement, if there is evidence
als as employees.
that adoption assistance was a subject of good-faith
•
A current employee.
bargaining.
•
A former common-law employee you maintain cover-
2. It does not pay more than 5% of its payments during
age for in consideration of or based on an agree-
the year for shareholders or owners (or their spouses
ment relating to prior service as an employee.
or dependents). A shareholder or owner is someone
•
who owns (on any day of the year) more than 5% of
A leased employee who has provided services to
the stock or of the capital or profits interest of your
you on a substantially full-time basis for at least a
year if the services are performed under your pri-
business.
mary direction or control.
3. You give reasonable notice of the plan to eligible
employees.
Exception for S corporation shareholders. Do not
4. Employees provide reasonable substantiation that
treat a 2% shareholder of an S corporation as an employee
payments or reimbursements are for qualifying ex-
of the corporation for this purpose. A 2% shareholder is
penses.
someone who directly or indirectly owns (at any time dur-
ing the year) more than 2% of the corporation’s stock or
For this exclusion, a highly compensated employee for
stock with more than 2% of the voting power. Treat a 2%
2012 is an employee who meets either of the following
shareholder as you would a partner in a partnership for
tests.
fringe benefit purposes, but do not treat the benefit as a
reduction in distributions to the 2% shareholder.
1. The employee was a 5% owner at any time during
the year or the preceding year.
Exclusion from wages. You can generally exclude the
2. The employee received more than $115,000 in pay
value of achievement awards you give to an employee
for the preceding year.
from the employee’s wages if their cost is not more than
the amount you can deduct as a business expense for the
year. The excludable annual amount is $1,600 ($400 for
Page 8
Publication 15-B (2012)
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