Publication 15 B - Employer'S Tax Guide To Fringe Benefits - 2002 Page 5
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24Exclusion from wages. You can generally exclude the
Accident and
value of accident or health benefits you provide to an
employee from the employee’s wages.
Health Benefits
Exception for certain long-term care benefits. You
cannot exclude contributions to the cost of long-term care
This exclusion applies to contributions you make to an
insurance from an employee’s wages subject to federal
accident or health plan for an employee, including the
income tax withholding if the coverage is provided through
following:
a flexible spending or similar arrangement. This is a benefit
program that reimburses specified expenses up to a maxi-
•
Contributions to the cost of accident or health insur-
mum amount that is reasonably available to the employee
ance.
and is less than 5 times the total cost of the insurance.
•
However, you can exclude these contributions from the
Contributions to a separate trust or fund that pro-
employee’s wages subject to social security, Medicare,
vides accident or health benefits directly or through
and federal unemployment taxes.
insurance.
•
S corporation shareholders. Because you cannot
Contributions to Archer MSA’s (discussed in Publi-
treat a 2% shareholder of an S corporation as an employee
cation 969, Medical Savings Accounts (MSAs)).
for this exclusion, you must include the value of accident or
health benefits you provide the employee in the
This exclusion also applies to payments you make (di-
employee’s wages subject to federal income tax withhold-
rectly or indirectly) to an employee, under an accident or
ing. However, you can exclude the value of these benefits,
health plan for employees, that are either of the following:
other than payments for specific injuries or illnesses, from
•
the employee’s wages subject to social security, Medicare,
Payments or reimbursements of medical expenses.
and federal unemployment taxes.
•
Payments for specific injuries or illnesses (such as
Exception for highly compensated employees. If
the loss of the use of an arm or leg). The payments
your plan is a self-insured medical reimbursement plan
must be figured without regard to any period of ab-
that favors highly compensated employees, you must in-
sence from work.
clude all or part of the amounts you pay to these employ-
ees in their wages subject to federal income tax
Accident or health plan. This is an arrangement that
withholding. However, you can exclude these amounts,
provides benefits for your employees, their spouses, and
other than payments for specific injuries or illnesses, from
their dependents in the event of personal injury, or sick-
the employee’s wages subject to social security, Medicare,
ness. The plan may be insured or noninsured and does not
and federal unemployment taxes.
need to be in writing.
A self-insured plan is a plan that reimburses your em-
ployees for medical expenses not covered by an accident
Employee. For this exclusion, treat the following individu-
or health insurance policy.
als as employees.
A highly compensated employee for this exception is
any of the following individuals.
1) A current common-law employee.
1) One of the five highest paid officers.
2) A full-time life insurance agent who is a current statu-
tory employee.
2) An employee who owns (directly or indirectly) more
than 10% in value of the employer’s stock.
3) A retired employee.
3) An employee who is among the highest paid 25% of
4) A former employee that you maintain coverage for
all employees, other than those who can be ex-
based on the employment relationship.
cluded from the plan.
5) A widow or widower of an individual who died while
For more information on this exception, see section
an employee.
105(h) of the Internal Revenue Code and the related regu-
6) A widow or widower of a retired employee.
lations.
7) For the exclusion of contributions to an accident or
health plan, a leased employee who has provided
Achievement Awards
services to you on a substantially full-time basis for
at least a year if the services are performed under
your primary direction or control.
This exclusion applies to the value of any tangible personal
property you give to an employee as an award for either
Exception for S corporation shareholders. Do not
length of service or safety achievement. The exclusion
treat a 2% shareholder of an S corporation as an employee
does not apply to awards of cash, cash equivalents, gift
of the corporation for this purpose. A 2% shareholder is
certificates, or other intangible property such as vacations,
someone who directly or indirectly owns (at any time dur-
meals, lodging, tickets to theater or sporting events,
ing the year) more than 2% of the corporation’s stock or
stocks, bonds, and other securities. The award must meet
stock with more than 2% of the voting power.
the requirements for employee achievement awards dis-
Page 5
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