By: Matthew James Malinowski, Business Manager Susquehanna Township School District 3550 Elmerton Ave Harrisburg, PA 17109 Ph; 717-657-5100 email: firstname.lastname@example.org
Written under request of the Human Resources Committee.
Perhaps the business functions most often associated with the Internal Revenue Service (IRS) is the payment of payroll taxes accrued and withheld and the filing of year end documents such as 1099s and W-2s. Additionally, however, the IRS has increased oversight of an often forgotten area of taxes in schools – taxable fringe benefits.
Maybe your initial response to taxable fringe benefits is “What?” Perchance you may think “we’re small, this wouldn’t apply to us.” You could be at the other end of the spectrum and know exactly what I am talking about all too well as the result of an audit. At the conclusion of an audit, recommendations are issued relative to the handling or oversight of taxable fringe benefits.
Definition of Taxable Fringe Benefits
The IRS publication 15-B (Rev, January 2007) defines a taxable fringe benefit as follows: “a form of pay for the performance of services.” An example would be if you provide an employee with a cell phone and due to the high number of minutes and lack of overages within the plan you allow the employee to make personal calls without charging the employee or requiring the employee to reimburse the district. (If this situation echoes a procedure your district does, then you have taxable fringe benefits to address.)
If an employee or contractor within your school district is receiving a taxable fringe benefit, such benefit must be included in the recipients pay unless the employee reimburses the district for the cost of the benefit or the law would exclude the benefit from being taxed. The most common reporting document for a taxable fringe benefit is Form W-2.
Identification of Taxable Fringe Benefits
The IRS publication 15-B details out a table of rules for various types of fringe benefits.
The most common reason for a taxable fringe benefit not needing to be reported is if the benefit was determined to be “de minimius” or provide minimal benefits. For example, if an employee occasionally provides meals for the employee such as a late night dinner when the employee works overtime, this is not considered a taxable fringe benefit. Additionally, the provision of parking, a transit pass, or a commuter car pool vehicle are excluded from being taxed under certain circumstances.
The more commonly reported taxable fringe benefits include personal usage of cellular phones and devices, personal use of a employer provided vehicles (the employee uses the vehicle to drive to and from home for example), and group-term life insurance coverage.
How to address Taxable Fringe Benefits?
Considering the frequency with which taxable benefits are provided to employees business officials need to ensure that the appropriate policies and procedures are in place to ensure that fringe benefits are tracked, monitored, and reported appropriately. A first recommendation would be to examine your board policy manual for any existing policies addressing any taxable benefits. For example, is there a policy on the issuance of cell phones or employer provided vehicles? There may already be a mechanism for reporting and reimbursing for personal use. In addition to the existing procedure, there needs to be a second means to track non reported use and then report it on the appropriate forms.
After an examination of your current policy manual it may seem advantageous to also add a policy that directly addresses taxable fringe benefits and the manner in which your district will regulate them. A policy could potentially include:
• Definition of Taxable Fringe Benefits and other related terms
• An identified individual to implement and report taxable fringe benefits
• Guidelines disclosing taxes fringe benefits are subject to, the verification process, and a process to record employee reimbursement.
In the development of a policy schools should review current board policies and school codes in addition to the Internal Revenue Service Regulations.
Implementing IRS regulations will more likely than not cause some concern on the part of your employees. Personnel may think that there is close scrutiny to prevent fraud or for other reasons. Clear communication of the policy and what the purpose is and is not will aid in the dissolution of rumors.
Internal Revenue Service. “Employer’s Tax Guide to Fringe Benefits”. Publication 15-B January 2007.
Internal Revenue Service. “Taxable Fringe Benefit Guide.” January 2006.