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

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Holiday gifts. Holiday gifts, other than cash, with a

assistance program each year. This limit is reduced to

low fair market value are de minimis benefits.

$2,500 for married employees filing separate returns.

However, the exclusion cannot be more than the earned

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Life insurance on spouse or dependent.

income of either:

Group-term life insurance payable on the death of an

employee’s spouse or dependent is a de minimis

1) The employee, or

benefit if the face amount is not more than $2,000.

2) The employee’s spouse.

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Meals. De minimis meals are discussed under

Special rules apply to determine the earned income of a

Meals, later.

spouse who is either a student or not able to care for

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Parties and picnics. Occasional parties or picnics

himself or herself. For more information on the earned

for employees and their guests are de minimis bene-

income limit, see Publication 503.

fits.

Exception for highly compensated employees. You

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Tickets for entertainment or sporting events. Oc-

cannot exclude dependent care assistance from the

casional tickets for entertainment or sporting events

wages of a highly compensated employee unless the ben-

are de minimis benefits.

efits provided under the program do not favor highly com-

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pensated employees and the program meets the

Transportation fare. De minimis transportation fare

requirements described in section 129(d) of the Internal

is discussed under Transportation (Commuting)

Revenue Code.

Benefits, later.

For this exclusion, a highly compensated employee for

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Typing. Occasional typing of personal letters by a

2002 is an employee who meets either of the following

company secretary is a de minimis benefit.

tests.

1) The employee was a 5% owner at any time during

Employee. For this exclusion, treat any recipient of a de

the year or the preceding year.

minimis benefit as an employee.

2) The employee received more than $90,000 in pay for

the preceding year.

Dependent Care

You can choose to ignore test (2) if the employee was not

also in the top 20% of employees when ranked by pay for

Assistance

the preceding year.

Form W –2. Report the value of all dependent care assis-

This exclusion applies to household and dependent care

tance you provide to an employee under a dependent care

services you pay for (directly or indirectly) or provide to an

assistance program in box 10 of the employee’s Form

employee under a dependent care assistance program

W–2. Include any amounts you cannot exclude from the

that covers only your employees. The services must be for

employee’s wages in boxes 1, 3, and 5.

a qualifying person’s care and must allow the employee to

work. These requirements are basically the same as the

tests the employee would have to meet to claim the depen-

Educational Assistance

dent care credit if the employee paid for the services. For

more information, see Qualifying Person Test and

Work-Related Expense Test in Publication 503, Child

This exclusion applies to educational assistance you pro-

and Dependent Care Expenses.

vide to employees under an educational assistance pro-

gram. For expenses relating to courses beginning in 2002,

Employee. For this exclusion, treat the following individu-

the exclusion also applies to graduate level courses.

als as employees.

Educational assistance means amounts you pay or in-

cur for your employees’ education expenses. These ex-

1) A current employee.

penses generally include the cost of books, equipment,

2) A leased employee who has provided services to

fees, supplies, and tuition. Also, these expenses do not

you on a substantially full-time basis for at least a

include the cost of a course or other education involving

year if the services are performed under your pri-

sports, games, or hobbies, unless the education:

mary direction or control.

1) Has a reasonable relationship to your business, or

3) Yourself (if you are a sole proprietor).

2) Is required as part of a degree program.

4) A partner who performs services for a partnership.

Education expenses do not include the cost of tools or

supplies (other than textbooks) that your employee is al-

Exclusion from wages. You can exclude the value of

lowed to keep at the end of the course. Nor do they include

benefits you provide to an employee under a dependent

the cost of lodging, meals, or transportation.

care assistance program from the employee’s wages if you

reasonably believe that the employee can exclude the

Educational assistance program. An educational assis-

benefits from gross income.

tance program is a separate written plan that provides

An employee can generally exclude from gross income

educational assistance only to your employees. The pro-

up to $5,000 of benefits received under a dependent care

gram qualifies only if all of the following tests are met.

Page 7

Publication 15 B - Employer'S Tax Guide To Fringe Benefits - 2002 Page 7

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