- Various dollar limitations apply to each benefit.
- Qualifying rules and guidelines must be followed for various types of benefits.
- The bottom line is that there are limitations and qualifications that must be considered for each type of benefit!
- Common exclusions from income include payments for:
Health insurance premiums for employees and their spouses or children (under age 27 at the end of the tax year)
Contributions to Health Savings Accounts (HSAs) or Archer Medical Savings Accounts (MSAs)
- Can apply to current employees, retired employees, certain former employees and widows or widowers among others.
- Employers generally may make pre-tax contributions to retirement plans for employees.
- Employee contributions to traditional retirement plans may be excluded from income.
- Employee contributions to Roth retirement plans not excluded from income but grow tax-free.
FLEXIBLE SPENDING ARRANGEMENTS
- Employees may use tax-free funds to pay for qualified health care and/or dependent care expenses.
- Employee contributions may be excluded from taxable income.
- Use it or lose it!
Plans may offer a 2½ month grace period for qualified expenses.
Plans may alternatively allow a maximum of $500 to be used in the following year.
- Employer payments for the first $50,000 of group-term life insurance coverage are excluded from income.
- Coverage above $50,000 is taxable, but is generally still quite affordable.
OTHER FRINGE BENEFITS
- Too many to list all! However, many common benefits are listed below.
- Adoption assistance
- Achievement awards
- Athletic facilities
- De minimis benefits
- Dependent care benefits
- Educational assistance
- Employee discounts
- Moving expenses
- Parking and transportation
- Working condition fringes
Courtesy: Christopher Harper, CPA, MBA
Seidman College of Business/Hungerford Nichols