Publication 15 B - Employer'S Tax Guide To Fringe Benefits - 2002 Page 3
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Scholarships and fellowships.
a) A 5% owner of your business.
•
Transportation (commuting) benefits.
b) A 1% owner of your business whose annual pay
was more than $150,000.
•
Tuition reduction.
•
Working condition benefits.
Form 5500. If you maintain a cafeteria plan, you must
report information about the plan each year by the last day
It also cannot include scholarships or fellowships (dis-
of the 7th month after the plan year ends. Use Form 5500,
cussed in Publication 520, Scholarships and Fellow-
Annual Return/Report of Employee Benefit Plan, and
ships).
Schedule F (Form 5500). See the form instructions for
information on extensions of time to file.
Employee. For these plans, treat the following individuals
as employees.
More information. For more information about cafeteria
plans, see section 125 of the Internal Revenue Code and
1) A current common-law employee (see Circular E for
the related regulations.
more information).
2) A full-time life insurance agent who is a current statu-
2. Fringe Benefit Exclusion
tory employee.
3) A leased employee who has provided services to
Rules
you on a substantially full-time basis for at least a
year if the services are performed under your pri-
This section discusses the exclusion rules that apply to
mary direction or control.
fringe benefits. These rules exclude all or part of the value
of certain benefits from the recipient’s pay.
Exception for S corporation shareholders. Do not
The excluded benefits are not subject to federal income
treat a 2% shareholder of an S corporation as an employee
tax withholding. Also, in most cases, they are not subject to
of the corporation. A 2% shareholder for this purpose is
social security, Medicare, or federal unemployment tax
someone who directly or indirectly owns (at any time dur-
and are not reported on Form W–2.
ing the year) more than 2% of the corporation’s stock or
This section discusses the exclusion rules for the follow-
stock with more than 2% of the voting power.
ing fringe benefits.
Plans that favor highly compensated employees. If
•
Accident and health benefits.
your plan favors highly compensated employees as to
•
Achievement awards.
eligibility to participate, contributions, or benefits, you must
include in their wages the value of taxable benefits they
•
Archer medical savings accounts.
could have selected. A plan you maintain under a collec-
•
Athletic facilities.
tive bargaining agreement does not favor highly compen-
sated employees.
•
De minimis (minimal) benefits.
A highly compensated employee for this purpose is any
•
Dependent care assistance.
of the following employees.
•
Educational assistance.
1) An officer.
•
Employee discounts.
2) A shareholder who owns more than 5% of the voting
•
power or value of all classes of the employer’s stock.
Employee stock options.
•
3) An employee who is highly compensated based on
Group-term life insurance coverage.
the facts and circumstances.
•
Lodging on your business premises.
4) A spouse or dependent of a person described in (1),
•
Meals.
(2), or (3).
•
Moving expense reimbursements.
Plans that favor key employees. If your plan favors key
•
No-additional-cost services.
employees, you must include in their wages the value of
•
Transportation (commuting) benefits.
taxable benefits they could have selected. A plan favors
•
key employees if more than 25% of the total of the nontax-
Tuition reduction.
able benefits you provide for all employees under the plan
•
Working condition benefits.
go to key employees. However, a plan you maintain under
a collective bargaining agreement does not favor key em-
See Table 2–1 for an overview of the employment tax
ployees.
treatment of these benefits.
A key employee during 2002 is generally an employee
who is either of the following:
1) An officer having annual pay of more than $130,000.
2) An employee who for 2002 was either of the follow-
ing:
Page 3
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