I. OBJECTIVE & PURPOSE
To ensure that the University is in compliance with tax laws with respect to taxable fringe benefits provided to university employees. To also provide guidance that informs the university departments and staff of their responsibility to inform the Payroll Office of taxable fringe benefits provided to employees and to facilitate proper withholding and reporting of payroll taxes.II. STATEMENT OF POLICY
a. The University of North Florida provides several fringe benefits to employees. While some of the fringe benefits are provided university wide, others are provided to specific employees by their departments. Fringe benefits are a form of pay (including property, services, cash or cash equivalent) in addition to salary for the performance of services. These benefits include items such as meals and lodging (other than travel reimbursements), tickets, tuition waivers, etc.
b. Unless expressly excluded under the Internal Revenue Code (IRC), all taxable fringe benefits should be included in the employee’s gross income in the year in which they are received.
c. Taxable Fringe Benefits
Cash fringe benefits, such as gift cards and gift certificates, are generally always taxable. While not an exhaustive list, some taxable non-cash fringe benefits identified by the university as being subject to employment tax and reporting are:
i. Apparel allowance – Value of a merchandise credit provided to certain employees that allows them to acquire apparel and goods directly from an outside vendor.
ii. University provided vehicle – Value of personal use of a university-provided vehicle (including courtesy cars).
iii. Club membership – Value of university-paid club memberships and related expenditures to the extent that such activities are not documented to serve a bona-fide university business purpose.
iv. Gift certificates – Value of any cash-equivalent gift certificate awarded to an employee.
v. University-provided housing – Market value of lodging provided by the university that does not meet the tests for exclusion as identified above.
vi. Tickets – Value of season tickets/passes to events for which there is no bona-fide business purpose or the no-additional cost service exclusion does not apply.
vii. Spousal travel/meals – Value of university-paid travel and meals for the spouse of a university official or athletic department employee when the spouse’s attendance serves no documented official University business purpose (if spouse’s attendance is primarily social in nature, this does not qualify as a bona-fide business purpose).
viii. Graduate tuition – Value of university-paid tuition credits taken by an employee enrolled in a graduate degree program, where the total tuition benefit exceeds $5,250 in a calendar year and does not qualify as job-related education. Exception – Graduate education benefit provided to graduate students who are performing research or teaching for the university is not subject to tax. If the courses being taken are required by the University to maintain or improve skills for your current job or are required to keep your present salary, status or job, the graduate tuition waiver would not be taxable. To document this, the employee is required to complete the Employee Educational Assistance Program application form.
ix. Third party provided benefits – Generally, if a third party pays or provides a fringe benefit to a university employee in connection with the employee’s performance of services for the university, the payment is considered taxable income to the employee. University imposed withholding and reporting requirement occurs when the benefit is part of the employee’s employment contract, contemplated during the employment process, or provided by a third party via agreement with the University. Where a third party provides a benefit to a university employee on its own and without the approval of the university, the taxable value of this fringe is not considered taxable wages reportable by the university on the employee’s W-2. The employee should be aware that there still may be income tax consequences from such an arrangement; however, in this case, the university has no withholding or reporting obligations with regard to the benefit.d. Non-Taxable Fringe Benefits
i. No-additional cost services are defined as any service provided for use by an employee if the service is offered primarily for sale to students and third parties and the university incurs no substantial additional cost in providing the service to the employee. Examples are recreational facility use and tickets to events that have not sold out. IRC §132(b).
ii. Working condition fringes are any property or service provided to an employee that if the employee had paid for, the payment would be deductible as a business expense. Examples are business use of the following: wireless communication devices, university provided automobiles for business use, club memberships, professional dues, publications and meetings. With the exception of university provided wireless communication devices, any personal use of these items is considered taxable income.
iii. De minimis fringes include any property or service provided to an employee infrequently and that has a value so small that accounting for it is unreasonable and administratively impractical. Examples include occasional theater or sporting event tickets, group meals or picnics, awards and gifts, IRC §132(e); Reg. §1.132-6(b).
iv. A qualified employee discount allows an employee to obtain property or services from the university at a price below that charged to the general public. Generally, a qualified employee discount cannot exceed 20%. Otherwise, it may be taxable. IRC §132(c)(1)(B).
v. Qualified transportation fringes are pre-tax alternatives designed to help meet an employee's personal transportation needs, such as commuting to and from work. Examples include qualified parking and qualified transportation IRC §132(f)(5)(C).
vi. Meals and lodging provided to an employee may be non-taxable under certain circumstances. To qualify as non-taxable, the benefits must be in-kind (cash allowances do not qualify), provided for the university’s convenience and on the university’s business premises. An additional requirement for university-provided housing is that it must be required as a condition of employment for the employee to properly fulfill the duties of his/her employment. IRC §119.vii. Clothing Exempt from Taxation.
Uniform expenses and allowances may be considered working-condition fringe benefits. The acquisition and maintenance of employee uniforms are tax-deductible or tax-exempt as ordinary and necessary business expenses if the uniforms are: (1) specifically required as a condition of employment; and (2) of a distinctive nature and not of a type that is adaptable to general or continued usage as ordinary clothing. It is important that both parts of the definition be met for the exemption to be allowed.
Non-taxable clothing also includes protective clothing. Protective clothing should follow the US office of Safety and Health Administration (OSHA) Code of Federal Regulations (CFR) (29 CFR 1910.132.d) with the employer making an assessment of the hazards of the workplace. In such an instance where protective clothing is purchased, the supervisor shall identify and justify the specific items of clothing that are required for the safety of the employee in performing the job. The clothing must serve as a matter of employee protection and safety under OSHA rules to qualify as exempt from taxation.
Departments often purchase low-cost clothing items for employees running summer camps or for orientation-type events. Any clothing purchases costing $100 or less per employee, per calendar year will be considered a de minimis fringe benefit and will thus be non-taxable to the employee.
Apparel allowances, or the value of merchandise credit provided to certain employees that allows them to acquire apparel and goods directly from an outside vendor, is a taxable fringe benefit.
Departments that require employees to wear uniforms, the cost of which is not excludable from income, can manage tax consequences in one of three ways: (1) they may purchase the uniforms for employees, directly or through reimbursement, impute the value of the clothing, and report the amounts to the Payroll Office to be included on the employees’ Forms W-2; (2) departments may purchase the uniforms, impute the income, and pay the taxes for the employees by grossing up the cost of the benefit; or (3) they may allow employees to purchase and/or maintain their uniforms themselves, eliminating tax liability altogether. Should your department choose option 1 or 2, please use the Taxable Fringe Benefit Form to report taxable clothing benefits to the Payroll Office.
If any questions arise regarding the exclusion (or inclusion) of clothing in an employee’s taxable wages, please contact the Payroll Office for a final determination. A chart to help determine if clothing purchased is considered taxable income can be found at http: http://www.unf.edu/uploadedFiles/anf/controllers/payroll/Clothing%20Exempt%20from%20Taxation.pdf
viii. Educational tuition assistance (both undergraduate and graduate level) provided to employees is often non-taxable, subject to certain parameters. IRC 117(d); IRC 127; IRC 132(d). Please refer to UNF Policy 4.0220P Employee Educational Assistance Program for specifics on the University’s Plan.
ix. Employer reimbursements to employees for the cost of their professional licenses/certificates and professional organization dues may be excludable if they are directly related to the employee's job. Once an employee has completed the education or experience required for a professional license, the expenses necessary to maintain a license or status are considered ordinary and necessary business expenses and therefore are not taxable to the employee, when paid directly or reimbursed by the university subject to substantiation requirements (i.e. receipts). When paid or reimbursed by the university for an employee, the fees are a working condition fringe benefit. The expense, however, cannot qualify the employee for a new trade or business or assist them in meeting the minimum qualifications for their current job. For example, the university pays the annual CPA license fee for the facilities director each year. The facility director does not use his CPA expertise on the job for the university. Because the facility director does not use his CPA expertise in his university capacity, it is not a working condition fringe benefit and is subject to Federal income, social security and Medicare taxes. Furthermore, if the CPA license is a minimum requirement for the position, the payment for review courses or other expenses associated with obtaining this license would also be consider taxable.
e. Reporting of Taxable Fringe Benefits
i. Departments that provide fringe benefits to employees must consult the Payroll Office to ascertain whether the benefit is taxable and if not taxable, to ensure that the appropriate documentation is being maintained to support exclusion from taxable income.
ii. Generally, taxable fringe benefits are valued at their fair market value (FMV). According to the IRS, FMV is the amount a willing buyer would pay an unrelated willing seller, neither one forced to conduct the transaction and both having reasonable knowledge of the facts. In many cases, the cost and FMV are the same; however, there are many situations in which FMV and cost differ, such as when the employer incurs a cost less than the value to provide the benefit. Reg. §1.61-21(b).
iii. Taxable fringe benefits may be reported to the Payroll Office using the Taxable Fringe Benefit Form (unless otherwise instructed by another policy or upon mutual agreement with the Payroll Office, a different reporting mechanism may be used). Appropriate documentation that supports the taxable value to be included in the employee’s income must accompany the Taxable Fringe Benefit Form. Posting of taxable income and the applicable withholding is dependent upon the timing of receipt of documentation by the Payroll Office. The Payroll Office is responsible for determining the taxable amount. This ensures a consistent valuation of the benefits and compliance with IRS regulations. Departments should contact the Payroll Office for additional reporting procedures.
iv. It is intended that this policy conforms to relevant provisions of the Internal Revenue Code. Nothing in this policy shall be construed to grant eligibility for benefits for which an employee is not otherwise eligible under federal/state law, university policy or practice.