4.1. ERMUSR 05-12-2009 - Laserfiche WebLink

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Qualified benefits. A cafeteria plan can include the fol- lowing benefits discussed in section 2. • Accident and health benefits (but not Archer medical savings accounts (Archer MSAs) or long-term care insurance). • Adoption assistance. • Dependent care assistance. • Group-term life insurance coverage (including costs that cannot be excluded from wages). • Health savings accounts (HSAs). Distributions from an HSA may be used to pay eligible long-term care insurance premiums or qualified long-term care serv- ices. Benefits not allowed. A cafeteria plan cannot include the following benefits discussed in section 2. • Archer MSAs. (See Accident and Health Benefits.) • Athletic facilities. • De minimis (minimal) benefits. • Educational assistance. • Employee discounts. • Lodging on your business premises. • Meals. • Moving expense reimbursements. • No-additional-cost services. • Transportation (commuting) benefits. • Tuition reduction. • Working condition benefits. It also cannot include scholarships or fellowships (dis- cussed in Publication 970, Tax Benefits for Education). Employee. For these plans, treat the following individuals as employees. • A curren# common-law employee (see section 2 in Publication 15 (Circular E) for more information}. • A full-time life insurance agent who is a current stat- utory employee. • A leased employee who has provided services to you on a substantially full-time basis for at least a year i# the services are performed under your pri- mary direction or control. Exception for S corporation shareholders. Do not treat a 2°'° shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder for this purpose is someone who directly or indirectly owns (at any time during the year} more than 2% of the corpora- tion's stock or stock with more than 2% of the voting power. Treat a 2°% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2°i° share- holder. Plans that favor highly compensated employees. If your plan favors highly compensated employees as to eligibility to participate, contributions, or benefits, you must include in their wages the value of taxable benefits they could have selected. A plan you maintain under a collec- tive bargaining agreement does not favor highly compen- sated employees. A highly compensated employee for this purpose is any of the following employees. 1. An officer. 2. A shareholder who owns more than 5% of the voting power or value of all classes of the employer's stock. 3. An employee who is highly compensated based on the facts and circumstances. 4. A spouse or dependent of a person described in (1), (2), or (3). Plans that favor key employees. If your plan favors key employees, you must iriclude in their wages the value of taxable benefits they could have selected. A plan favors key employees if more than 25% of the total of the nontax- able benefits you provide for all employees under the plan go to key employees. However, a plan you maintain under a collective bargaining agreement does not favor key em- ployees. A key employee during 2008 is generally an employee who is either of the following. 1. An officer having annual pay of more than 5150,000. 2. An employee who for 2008 was either of the follow- ing. a. A 5% owner of your business. b. A 1 % owner of your business whose annual pay was more than $150,000. More information. For more information about cafeteria plans, see section 125 of the Internal Revenue Code and its regulations. 2. Fringe Benefit Exclusion Rules This section discusses the exclusion rules that apply to fringe benefits. These rules exclude all or part of the value of certain benefits from the recipient's pay. The excluded benefits are not subject to federal income tax withholding. Also, in most cases, they are not subject to social security, Medicare, or federal unemployment (FUTA) tax and are not reported on Form W-2. Publication 15-B (2008) Page 3