4.1. ERMUSR 05-12-2009 - Laserfiche WebLink

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does not apply to awards of cash, cash equivalents, gift certificates, or other intangible property such as vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, and other securities. The award must meet the requirements for employee achievement awards dis- cussed in chapter 2 of Publication 535, Business Ex- penses. Employee_ For this exclusion, treat the following individu- als as employees. • A current employee. • A former common-law employee you maintain cover- age for in consideration of or based on an agree- ment relating to prior service as an employee. • A leased employee who has provided services to you on a substantially full-time basis for at least a year if 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 is someone who directly or indirectly awns (at any time dur- ing the year) more than 2% of the corporation'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% shareholder. Exclusion from wages. You can generally exclude the value of achievement awards you give to an employee from the employee's wages if their cost is not more than the amount you can deduct as a business expense for the year. The excludable annual amount is $1,600 ($400 for awards that are not "qualified plan awards"). See chapter 2 of Publication 535 for more information about the limit on deductions for employee achievement awards. To determine for 2008 whether an achievement award is a `qualified plan award" under the de- duction rules described in Publication 535, treat any employee who received more than $100,OD0 in pay for 2007 as a highly compensated employee. If the cost of awards given to an employee is more than your allowable deduction, include in the employee's wages the larger of the following amounts. • The part of the cost that is more than your allowable deduction (up to the value of the awards). • The amount by which the value of the awards ex- ceeds your allowable deduction. Exclude the remaining value of the awards from the em- p{oyee's wages. Adopti®n Assistance An adoption assistance program is a separate written plan of an employer that meets ail of the following requirements. 1. It benefits employees who qualify under rules set up by you, which do not favor highly compensated em- ployees or their dependents. To determine whether your plan meets this test, do not consider employees excluded from your plan who are covered by a col- lective bargaining agreement, if there is evidence that adoption assistance was a subject of good-faith bargaining. 2. It does not pay more than 5% of its payments during the year for shareholders or owners (or their spouses or dependents). A shareholder or owner is someone who owns (on any day of the year} more than 5% of the stock or of the capital or profits interest of your business. 3. You give reasonable notice of the plan to eligible employees. 4. Employees provide reasonable substantiation that payments or reimbursements are for qualifying ex- penses. For this exclusion, a highly compensated employee for 2008 is an employee who meets either of the following tests. 1. The employee was a 5% owner at any time during the year or the preceding year. 2. The employee received more than $100,000 in pay for the preceding year. You can choose to ignore test (2) if the employee was not also in the top 20% of empioyees when ranked by pay for the preceding year. You must exclude all payments or reimbursements you make under an adoption assistance program for an em- ployee's qualified adoption expenses from the employee's wages subject to federal income tax withholding. However, you cannot exclude these payments from wages subject to social security, Medicare, and federal unemployment (FUTA) taxes. For more information, see the Instructions for Form 8839, Qualified Adoption Expenses. You must report all qualifying adoption expenses you paid or reimbursed under your adoption assistance pro- gram for each employee for the year in box 12 of the employee's Form W-2. Use code "T" to identify this amount. Exception for S corporation shareholders. For this ex- clusion, do not treat a 2°i° shareholder of an S corporation as an employee of the corporation. A 2% shareholder is someone who directly or indirectly owns (at any time dur- ing the year) more than 2% of the corporation'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 including using the benefit as a reduction in distributions to the 2°rd shareholder. Athletic Facilities You can exclude the value of an employee's use of an on-premises gym or other athletic facility you operate from an employee's wages if substantially all use of the facility during the calendar year is by your employees, their spouses, and their dependent children. For this purpose, an employee's dependent child is a child or stepchild who is the employee's dependent or who, if both parents are deceased, has not attained the age of 25. On-premises facility. The athletic facility must be located on premises you own or lease. It does not have to be Publication 15-8 (2008) Page 7