4.1. ERMUSR 05-12-2009 - Laserfiche WebLink

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(including employee customers) and your experience dur- ing the tax year immediately before the tax year in which the discount is available. To figure your gross profit per- centage, subtract the total cost of the property from the total sales price of the property and divide the result by the total sales price of the property. Exception for highly compensated employees. You cannot exclude from the wages of a highly compensated employee any part of the value of a discount that is not available on the same terms to one of the following groups. • All of your employees. • A group of employees defined under a reasonable classification you set up that does not favor highly compensated employees. 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 employees when ranked by pay for the preceding year. Employee Stock Options There are three kinds of stock options-incentive stock options, employee stock purchase plan options, and non- statutory (nonqualified) stock options. Wages for social security, Medicare, and federal unem- ploymenttaxes (FUTA) do not include remuneration result- ing from the exercise after October 22, 2004, of an incentive stock option or under an employee stock purchase plan option, or from any disposition of stock acquired by exercising such an option. The IRS will not apply these taxes to an exercise before October 23, 2004, of an incentive stock option or an employee stack purchase plan option or to a disposition of stock acquired by such exercise. Additionally, federal income tax withholding is not re- quired on the income resulting from a disqualifying disposi- tion of stock acquired by the exercise after October 22, 2004, of an incentive stock option or under an employee stock purchase plan option, or on income equal to the discount portion of stock acquired by the exercise, after October 22, 2004, of an employee stock purchase plan option resulting from any disposition of the stock. The IRS will not apply federal income tax withholding upon the disposition of stock acquired by the exercise, before Octo- ber 23, 2004, of an incentive stock option or an employee stock purchase plan option. However, the employer must report as income in box 1 of Form W-2, (a) the discount portion of stock acquired by the exercise of an employee stock purchase plan option upon disposition of the stock, and (b) the spread (between the exercise price and the fair market value of the stock at the time of exercise) upon a disqualifying disposition of stock acquired by the exercise of an incentive stock option or an employee stock purchase plan option. An employer must report the excess of the fair market value of stock received upon exercise of a nonstatutory stock option over the amount paid for the stock option on Form W-2 in boxes 1, 3 (up to the social security wage base), 5, and in box 12 using the code "V." See Regula- tions section 1.83-7. An employee who transfers his or her interest in non- statutory stock options to the employee's former spouse incident to a divorce is not required to include an amount in gross income upon the transfer. The former spouse, rather than the employee, is required to include an amount in gross income when the former spouse exercises the stock options. See Revenue Ruling 2002-22 and Revenue Rul- ing 2004-60 for details. You can find Rev. Rul. 2002-22 on page 849 of Internal Revenue Bulletin 2002-19 at www.irs. gov/pub/irs-irbs/irb02-79.pdf. You can find Rev. Rul. 2004-60 on page 1051 of Internal Revenue Bulletin 2004-24 at www.irs.gov/pub/irs-irbs/irb04-24.pdf. For more information about employee stock options, see sections 421, 422, and 423 of the internal Revenue Code and the related regulations. Group-Term Life Insurance Coverage This exclusion applies to life insurance coverage that meets all the following conditions. • It provides a general death benefit that is not in- cluded in income. • You provide it to a group of employees. See The 10-employee rule below. • It provides an amount of insurance to each em- ployee based on a formula that prevents individual selection. This formula must use factors such as the employee's age, years of service, pay, or position. • You provide it under a policy you directly or indirectly carry. Even if you do not pay any of the policy's cost, you are considered to carry it if you arrange for payment of its cost by your employees and charge at least one employee less than, and at least one other employee more than, the cost of his or her insur- ance. Determine the cost of the insurance, for this purpose, as explained under Coverage over the limit, later. Group-term life insurance does not include the following insurance. • Insurance that does not provide general death bene- fits, such as travel insurance or a policy providing only accidental death benefits. • Life insurance on the life of your employee's spouse or dependent. However, you may be able to exclude the cost of this insurance from the employee's wages as a de minimis benefit. See De Minimis (Minima!) Benefits, earlier. • Insurance provided under a policy that provides a permanent benefit (an economic value that extends beyond 1 poiicy year, such as paid-up or cash sur- rendervalue), unless certain requirements are met. See Regulations section 1.79-1 for details. Page 10 Publication 15-B (2008)