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

S corporation shareholders. Because you cannot

Different tests may apply to lodging furnished by educa-

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

tional institutions. For information, see section 119(d) of

for this exclusion, you must include the value of all

the Internal Revenue Code.

group-term life insurance coverage you provide the em-

This exclusion does not apply if you allow your em-

ployee in the employee’s wages subject to social security

ployee to choose to receive additional pay instead of lodg-

and Medicare taxes. You must also include the value of

ing.

this coverage in the employee’s wages shown in boxes 1,

On your business premises. For this exclusion, your

3, and 5 of Form W– 2. However, you can exclude the

business premises is generally your employee’s place of

value of this coverage from the employee’s wages subject

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

to federal income tax withholding and federal unemploy-

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

ment tax.

Internal Revenue Code and the related regulations.)

Coverage over the limit. You must include in your

For your convenience. Whether you furnish lodging for

employee’s wages subject to social security and Medicare

your convenience as an employer depends on all the facts

taxes the cost of group-term life insurance that is more

and circumstances. You furnish the lodging to your em-

than the cost of $50,000 of coverage, reduced by the

ployee for your convenience if you do this for a substantial

amount the employee paid toward the insurance. Report it

business reason other than to provide the employee with

as wages in boxes 1, 3, and 5 of the employee’s Form W-2.

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

Also, show it in box 12 with code C.

contract provides that the lodging is furnished as pay.

Former employees must pay the employee’s part of

However, a written statement that the lodging is furnished

social security and Medicare taxes on the cost of the

for your convenience is not sufficient.

excess coverage with their Form 1040. You are not re-

quired to collect these taxes. Report the uncollected social

Condition of employment. Lodging meets this test if you

security tax with code M and the uncollected Medicare tax

require your employees to accept it because they need to

with code N in box 12 of Form W– 2.

live on your business premises to be able to properly

Figure the monthly cost of the insurance to include in the

perform their duties. Examples include employees who

employee’s wages by multiplying the number of thousands

must be available at all times and employees who could

of dollars of insurance coverage over $50,000 (figured to

not perform their required duties without being furnished

the nearest $100) by the cost shown in the following table.

the lodging.

Use the employee’s age on the last day of the tax year.

It does not matter whether you must furnish the lodging

You must prorate the cost from the table if less than a full

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

month of coverage is involved.

fixing the terms of employment.

COST PER $1,000 OF PROTECTION

Example. A hospital gives Joan, an employee of the

FOR ONE MONTH

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

living elsewhere and receiving a cash allowance in addition

Age

Cost

Under 25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ .05

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

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

.06

the hospital cannot exclude the value of the lodging from

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

.08

her wages because she is not required to live at the

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

.09

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

.10

hospital to properly perform the duties of her employment.

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

.15

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

.23

S corporation shareholder-employee. For this exclu-

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

.43

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

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

.66

an employee of the corporation. A 2% shareholder is

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

1.27

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

2.06

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

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

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

stock with more than 2% of the voting power.

wages by multiplying the monthly cost by the number of full

months coverage at that cost.

Meals

Lodging on Your

This section discusses the exclusion rules that apply to the

Business Premises

following meals.

•

De minimis meals

You can exclude the value of lodging you furnish to an

•

Meals on your business premises

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

ing tests.

De Minimis Meals

1) It is furnished on your business premises.

2) It is furnished for your convenience.

This exclusion applies to any meal or meal money you

3) The employee must accept it as a condition of em-

provide to an employee that has so little value (taking into

ployment.

account how frequently you provide meals to your employ-

Page 11

Publication 15 B - Employer'S Tax Guide To Fringe Benefits - 2002 Page 11

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