Presenting a live 110-minute teleconference with interactive Q&A Employee Fringe Benefits and Sect. 409A Deferred Compensation: Tax Issues Evaluating Exclusions or Potential Federal Taxability WEDNESDAY, JUNE 12, 2013 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Tara Silver-Malyska, Tax Principal, UHY Advisors , Dallas James Davis, Shareholder and Chairman, Tax Practice Group, Gunster , Fort Lauderdale, Fla. Stefan Smith, Partner, Locke Lord , Dallas Cynthia A. Moore, Member, Dickinson Wright , Troy, Mich. For this program, attendees must listen to the audio over the telephone. Please refer to the instructions emailed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Employee Fringe Benefits and Sect. 409A Deferred Compensation: Tax Issues Seminar June 12, 2013 Cynthia A. Moore, Dickinson Wright Tara Silver-Malyska, UHY Advisors cmoore@dickinsonwright.com tsilver-malyska@uhy-us.com Stefan Smith, Locke Lord James Davis, Gunster ssmith@lockelord.com jdavis@gunster.com
Today’s Program Categories Of Fringe Benefits Getting A U.S. Tax Exclusion Slide 8 – Slide 24 [Cynthia A. Moore] Slide 25 – Slide 38 Fringe Benefits That Can Trigger A Tax Bill [Tara Silver-Malyska] Situations Of Employer Fringe Benefit Withholding Liability Slide 39 – Slide 61 [Stefan Smith] Material Terms Of Sect. 409A Regarding Taxability Slide 62 – Slide 99 [James Davis]
Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
Cynthia A. Moore, Dickinson Wright CATEGORIES OF FRINGE BENEFITS GETTING A U.S. TAX EXCLUSION
Categories Of Fringe Benefits Conceptually, all benefits provided by an employer to employees other than cash wages or salary May be divided into three broad categories: • Benefits provided as future cash payments or property rights, such as qualified or non-qualified deferred compensation plans and equity-based plans • Benefits provided in the form of insurance or unfunded welfare benefits, such as health, life or disability insurance • Benefits provided currently, including property made available, job- related working conditions and incidental benefits such as use of company car 9
Tax Consequences Of Fringe Benefits IRC Sect. 61(a): “… gross income means all income from whatever source derived, including (not limited to) the following items: (1) compensation for services, including fees, commissions, fringe benefits and similar items.” Applies to cash and non-cash compensation Must be an express exclusion in the Internal Revenue Code to exclude a fringe benefit from employee income 10
Deferred Compensation Benefits • IRC Sect. 402: Contributions to a qualified retirement plan are not taxable until distributed. • An employer’s unsecured promise to pay deferred compensation also defers tax until distributions are made, subject to compliance with IRC Sect. 409A. Deferred compensation plans of tax-exempt employers that do not comply with the rules of IRC Sect. 457(b) are taxable when they are no longer subject to a substantial risk of forfeiture under IRC Sect. 457(f). • Under IRC Sect. 83, property that is subject to a substantial risk of forfeiture is taxable when the risk of forfeiture lapses, unless the employee makes an 83(b) election to recognize income on the date the property is transferred to him or her. • Note that the taxation of these benefits is deferred, not excluded from income. 11
Welfare Benefit Plan Exclusions • IRC Sect. 79: Group-term life insurance up to $50,000 • IRC Sect. 105/106: Accident and health benefits. Employer contributions are excludible (up to certain limits noted below) under IRC Sect.106. Benefit payments for medical care of the employee, spouse and dependents are excluded from income under IRC Sect. 105(b). A self-insured medical reimbursement plan cannot discriminate in favor of highly compensated individuals, under IRC Sect. 105(h). Contributions to a health savings account are limited to $3,250 for self- only coverage and $6,450 for family coverage; employer contributions must be “comparable.” Employee pre-tax contributions to a health flexible spending account are limited to $2,500 for plan years on or after Jan. 1, 2013. An employer may contribute an additional “flex credit” to a health FSA. 12
Welfare Benefit Exclusions (Cont.) • IRC Sect. 125: Cafeteria plan allows employees to make pre-tax contributions for qualified benefits. • IRC Sect. 127: An educational assistance program allows an employee to exclude up to $5,250 per year. • IRC Sect. 129: A dependent care assistance program allows an employee to exclude up to $5,000 per year. • IRC Sect. 137: An adoption assistance program allows an employee to exclude a cumulative limit of $12,970 in 2013. 13
Incidental Fringe Benefits IRC Sect. 132: Eight categories of excludible benefits • Working condition fringes • No-additional cost services • Qualified employee discounts • De minimis fringes • Qualified transportation fringes • Qualified moving expense reimbursements • Qualified retirement planning services • Qualified military base realignment and closure fringes 14
Working Condition Fringes Definition: Any property or service that, if the employee had paid for it, would be deductible under IRC sections 162 or 167. Examples: • Business use of company car or airplane • Office décor • Employer-provided cell phone • Professional memberships, dues and publications • Job-related educational assistance • Security arrangements (if the need for security is substantiated) • Outplacement services (if the employer derives a substantial business benefit from the service) 15
No-Additional Cost Services Definition: A service provided to an employee for which the employer does not incur any substantial additional cost Examples: • Space-available travel on an airplane, train or bus • Use of available hotel rooms 16
Qualified Employee Discounts Definition: An employee discount on qualified property or services. The maximum excludible discount on services is 20% of the price at which the employer offers the service to non-employee customers. The maximum excludible discount on property or merchandise is the employer’s “gross profit percentage” (the excess of the aggregate sales price of the products sold to non-employee customers over the aggregate cost of the property divided by the aggregate sales price). “Qualified property or services” means property or services offered for sale to customers in the ordinary course of business of the line of business of the employer in which the employee provides services. Does NOT include real property or personal property of a kind held for investment 17
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