6. Employee Fringe Benefits The following fringe benefits provided by an employer are excludedfrom the employee's gross income. The benefits are not subject tosocial security, Medicare, and FUTA taxes, or income tax withholding. A no-additional-cost service, which is a serviceoffered for sale to customers in the course of the employer's line ofbusiness in which the employee works. It is provided at no substantialadditional cost, including lost revenue, to the employer. Examplesinclude airline, bus, and train tickets and telephone servicesprovided free or at reduced rates by an employer in the line ofbusiness in which the employee works. A qualified employee discount that, if offeredfor property, is not more than the employer's gross profit percentage.If offered for services, the discount is not more than 20% of theprice for services offered to customers. A working condition benefit that is property or aservice the employee could deduct as a business expense if he or shehad paid for it. Examples include a company car for business use andsubscriptions to business magazines. Under special rules, all of theuse of a demonstrator car by an auto salesperson is excluded if thereare substantial restrictions on personal use. A de minimis benefit that is a service or an itemof such small value (after taking into account how frequently similarbenefits are provided to employees) as to make accounting for thebenefit unreasonable or administratively impracticable. Examplesinclude typing of a personal letter by a company secretary, occasionalpersonal use of a company copying machine, occasional parties orpicnics for employees, occasional supper money and taxi fare foremployees working overtime, holiday gifts with a low fair marketvalue, occasional tickets for entertainment events, coffee anddoughnuts furnished to employees, and group-term life insuranceprovided by the employer for a spouse or dependent of the employeewith a face amount of $2,000 or less. Also exclude from the employee'sincome meals at an eating facility operated by the employer foremployees on or near the employer's business premises if the incomefrom the facility equals or exceeds the direct operating costs of thefacility. A qualified transportation benefit, whichincludes transit passes, transportation in a commuter highway vehicleto and from work, and qualified parking at or near the place of work.The combined exclusion for the transit passes and transportationcannot exceed $65 per month for 2000. The exclusion for parking cannotexceed $175 per month for 2000. Effective January 1, 1998, employeesmay be given a choice of any qualified transportation benefit or cashwithout losing the exclusion of the transportation benefit from incomeand employment taxes. If an employee chooses the cash option, the cashis includible in the employee's income and subject to employmenttaxes. For more information on this transportation fringe benefit, seechapter 4 in Pub. 535. A qualified moving expense reimbursement, whichincludes any amount received, directly or indirectly, by an employeefrom an employer as a payment for, or reimbursement of, expenses thatwould be deductible as moving expenses, if paid or incurred by theemployee. For more information on expenses that qualify for adeduction, see Pub. 521, Moving Expenses. An on-premises gym or other athletic facilityprovided and operated by the employer if substantially all theuse is by employees, their spouses, and their dependentchildren. A qualified tuition reduction, which aneducational organization provides its employees for education,generally below the graduate level. For more information on aqualified tuition reduction, see Pub. 520, Scholarships andFellowships. Do not exclude the following fringe benefits from theincome of highly compensated employees unless the benefits areavailable to employees on a nondiscriminatory basis. No-additional-cost services (item 1). Qualified employee discounts (item 2). luxury hotels in KortrijkMeals provided at an employer-operated eating facility(included in item 4). Qualified tuition reduction (item 8). Dianmarka hoteles For more information, including the definition of a highlycompensated employee, see Pub. 535. Special fringe benefit rules for airlines and theiraffiliates.Employees of a qualified affiliate of an airline (a member of agroup in which another member operates the airline) who are directlyengaged in providing airline-related services may exclude from theirincome as a no-additional-cost service the fair market value of airtransportation provided by the other member. Airline-related servicesmeans providing any of the following services in connection with airtransportation: catering, baggage handling, ticketing andreservations, flight planning and weather analysis, service atrestaurants and gift shops located at an airport, and similarservices. Any use of air transportation provided by an airline to parents ofthe airline's employees is also treated as use by the employees. Theemployees are entitled to exclude the fair market value of suchtransportation from their income as a no-additional-cost service. More information.For more detailed information on nontaxable fringe benefits, seechapter 4 in Pub. 535. Taxable Noncash Fringe Benefits Use the following guidelines for withholding, depositing, andreporting taxable noncash fringe benefits. Valuation of fringe benefits.Generally, you must determine the value of noncash fringe benefitsno later than January 31 of the next year. Prior to January 31, youmay reasonably estimate the value of the fringe benefits for purposesof withholding and depositing on time. Choice of period for withholding, depositing, and reporting.For employment tax and withholding purposes, you can treat fringebenefits (including personal use of employer-provided highway motorvehicles) as paid on a pay period, quarter, semiannual, annual, orother basis. But the benefits must be treated as paid no lessfrequently than annually. You do not have to choose the same periodfor all employees. You can withhold more frequently for some employeesthan for others. You can change the period as often as you like as long as you treatall the benefits provided in a calendar year as paid no later thanDecember 31 of the calendar year. You can also treat the value of a single fringe benefit as paid onone or more dates in the same calendar year, even if the employeereceives the entire benefit at one time. For example, if your employeereceives a fringe benefit valued at $1,000 in one pay period during2000, you can treat it as made in four payments of $250, each in adifferent pay period of 2000. You do not have to notify the IRS of theuse of the periods discussed above. Transfer of property.The above choice for reporting and withholding does not apply to afringe benefit that is a transfer of tangible or intangible personalproperty of a kind normally held for investment, or a transfer of realproperty. For this kind of fringe benefit, you must use the actualdate the property was transferred to the employee. Withholding and depositing taxes.You can add the value of fringe benefits to regular wages for apayroll period and figure income tax withholding on the total. Or youcan withhold Federal income tax on the value of fringe benefits at theflat 28% rate applicable to supplemental wages. You must withhold the applicable income, social security, andMedicare taxes on the date or dates you chose to treat the benefits aspaid. Deposit the amounts withheld as discussed in section 11 ofCircular E. Amount of deposit.To estimate the amount of income tax withholding and employmenttaxes and to deposit it on time, make a reasonable estimate of thevalue of the fringe benefits provided on the date or dates you choseto treat the benefits as paid. Determine the estimated deposit byfiguring the amount you would have had to deposit if you had paid cashwages equal to the estimated value of the fringe benefits and withheldtaxes from those cash wages. Even if you do not know which employeewill receive the fringe benefit on the date the deposit is due, youshould follow this procedure. If you underestimate the value of the fringe benefits and depositless than the amount you would have had to deposit if the applicabletaxes had been withheld, you may be subject to a penalty. If you overestimate the value of the fringe benefit andoverdeposit, you can either claim a refund or have the overpaymentapplied to your next Form 941. If you deposited the required amount of taxes but withheld a lesseramount from the employee, you can recover from the employee the socialsecurity, Medicare, or income taxes you deposited on the employee'sbehalf and included on the employee's Form W-2. However, you mustrecover the income taxes before April 1 of the following year. Special accounting rule.You can treat the value of benefits provided during the last 2months of the calendar year, or any shorter period within the last 2months, as paid in the next year. Thus, the value of benefits actuallyprovided in the last 2 months of 1999 would be treated as provided in2000 together with the value of benefits provided in the first 10months of 2000. This does not mean that all benefits treated as paidduring the last 2 months of a calendar year can be deferred until thenext year. Only the value of benefits actually provided during thelast 2 months of the calendar year can be treated as paid in the nextcalendar year. Limitation.The special accounting rule cannot be used, however, for a fringebenefit that is a transfer of tangible or intangible personal propertyof a kind normally held for investment, or a transfer of realproperty. Conformity rules.Use of the special accounting rule is optional. You can use therule for some fringe benefits but not others. The period of use neednot be the same for each fringe benefit. However, if you use the rulefor a particular fringe benefit, you must use it for all employees whoreceive that benefit. If you use the special accounting rule, your employee also must useit for the same period as you use it. But your employee cannot use thespecial accounting rule unless you do. You do not have to notify the IRS if you use the special accountingrule. You may also, for appropriate reasons, change the period forwhich you use the rule without notifying the IRS. But you must reportthe income and deposit the withheld taxes as required for the changedperiod. Special rules for highway motor vehicles.If an employee uses the employer's vehicle for personal purposes,the value of that use must be determined by the employer and includedin the employee's wages. The value of the personal use must be basedon fair market value or one of three special valuation rules: The automobile lease valuation rule. The vehicle cents-per-mile rule. The commuting valuation rule (for commuting useonly). See Pub. 535 for information on these special valuation rules. Election not to withhold income tax.You can choose not to withhold income tax on the value of anemployee's personal use of a highway motor vehicle you provided. Youdo not have to make this choice for all employees. You can withholdincome tax from the wages of some employees but not others. You must,however, withhold the applicable social security and Medicare taxes onsuch benefits. You can choose not to withhold income tax by: Notifying the employee as described below that you choosenot to withhold and Including the value of the benefits in boxes 1, 3, 5, and 12on a timely furnished Form W-2. For use of a separate statement inlieu of using box 12, see the Instructions for Forms W-2 andW-3. The notice must be in writing and must be provided to the employeeby January 31 of the election year or within 30 days after a vehicleis first provided to the employee, whichever is later. This noticemust be provided in a manner reasonably expected to come to theattention of the affected employee. For example, the notice may bemailed to the employee, included with a paycheck, or posted where theemployee could reasonably be expected to see it. You can also changeyour election not to withhold at any time by notifying the employee inthe same manner. Amount to report on Forms 941 and W-2.The actual value of fringe benefits provided during a calendar year(or other period as explained under Special accounting ruleearlier) must be determined by January 31 of the following year.You must report the actual value on Forms 941 and W-2. If you choose,you can use a separate Form W-2 for fringe benefits and any otherbenefit information. Include the value of the fringe benefit in box 1 of Form W-2. Alsoinclude it in boxes 3 and 5 if applicable. Show the total value of thefringe benefits provided in the calendar year or other period in box12 of Form W-2. If you provided your employee with the use of ahighway motor vehicle and included 100% of its annual lease value inthe employee's income, you must also report it separately in box 12(or provide it in a separate statement). If there is not enough spaceon the Form W-2, you must report the value to the employee on aseparate schedule so that the employee can compute the value of anybusiness use of the vehicle. If you use the special accounting rule, you must notify theaffected employees of the period in which you used it. You must givethe notice at or near the date you give the Form W-2 but not earlierthan with the employee's last paycheck of the calendar year.