Lesson 10: Wages and Compensation
What is the most an employer can exclude for the cost of all employee achievement awards that is under a qualified plan?
$1,600.
For most fringe benefits studied in the lesson, a highly compensated employee is one who receives more than _______ in pay for the preceding year. A $95,000 B $100,000 C $115,000 D $120,000
$115,000
Employees are not required to report their tips if they total less than __ per month?
$20
What is the most an employer can exclude for the cost of all employee achievement awards that is not under a qualified plan? A $1,500. B $1,600. C $400. D $115,000.
$400
What is the most that can be excluded from taxation per yer per employee?
$400
Non-accountable plan
Under a non-accountable plan: The employer advances the amount needed The employee doesn't have to submit receipts or documentation The employee doesn't have to return any amount Funds under a non-accountable plan are treated as supplemental wages. They are subject to taxation.
If an employer lends an employee more than _____ at an interest rate less than the current applicable federal rate (AFR), the difference between the interest paid and the interest that would be paid under the AFR is considered additional compensation to the employee. A $5,000 B $100,000 C $10,000 D $50,000
C $10,000
Amanda receives a bonus of $750 for winning employee of the quarter. The payroll department will process the check separately from the employee's normal payroll check. What would the federal income tax on this wage payment be?
C $187.50.
Payments made under a non-accountable plan are wages and subject to which taxation?
C FIT, FICA, and FUTA.
To exclude the cost of a no-additional-cost service fringe benefit from the employee's taxable wages, what must the service provided to the employee not cause the employer to incur? A Additional paperwork. B De minimis additional costs. C Substantial additional costs. D All of these services.
C Substantial additional costs.
What federal taxes are stipends generally subject to? A FIT, only as they are not considered wages. B FICA, only as they are not considered wages. C None, as they are not considered wages. D All employment taxes, as they are considered wages.
D All employment taxes, as they are considered wages.
Which of the following rules must be met for a plan to be considered an "accountable plan"? A Employees must have paid or incurred deductible expenses while performing services as your employee. Incorrect B Employees must adequately account to the employer for these expenses within a reasonable period of time. C Employees must return any amounts in excess of expenses within a reasonable period of time. D All of these rules.
D All of these rules.
Employers can exclude the value of meals or lodging furnished to an employee from the employee's wages if it meets what tests? Use letters in alphabetical order to select options A It is furnished on the employer's business premises. B It is furnished for the employer's convenience. C The employee must accept it as a condition of employment. D All of these tests apply.
D All of these tests apply.
A golden parachute payment is reported in which box of the Form W-2? A Box 12 Code G. B Box 12 Code P. C Box 12 Code L. D Box 12 Code K.
D Box 12 Code K.
Qualified disaster relief payments made to an employee by an employer are subject to what taxation? Use letters in alphabetical order to select options A FIT, FICA, and FUTA. B FIT only. C FICA only. D No taxation; they are considered a grant.
D No taxation; they are considered a grant.
Form 8027
If your employer is required to do tip allocations, then you must use Form 8027 to make annual reports to the IRS. The form must be filed by February 28 each year, or March 31, if filing electronically.
Accountable plan
In an accountable plan, an employee is accountable for the expenses. That is, an employee must: Have incurred expenses during work Account for these expenses Return any amounts in excess of expenses in a reasonable period of time Reimbursements in these plans are not taxable.
DOL's View of Overpayment, Opinion Letter No. 1916
the DOL lays out its position on overpayment. It states that: Overpayment is to be treated as an advance on wages. The employer has the discretion to charge interest and set the rate of interest. If the claim of overpayment is undisputed, there's no need to get the agreement in writing.
With this type of plan,
there's a higher limit of $1,600 (as opposed to the regular limit of $400 per year per employee). But an award can't be treated as a qualified plan award if the average cost per recipient of all awards is more than $400.
What is the per diem for mileage in 2015?
$.575 per mile.
What are wages?
But according to the IRS definition, "wages" include: salaries vacation allowances bonuses commissions fringe benefits
How many days does the employee have to inform his or her employer when beginning work for another employer if the employee works less than full-time, five days a week?
10 days
The value of employer-provided security can be excluded from an employee's wages under what Internal Revenue Code? A 67. B 132. C 125. D 129.
132
The issue of overpayments is addressed by the Department of Labor in which opinion letter?
1916
What is the current federal supplemental tax rate?
25%
Large food and beverage employers must make an annual report of tips by using what IRS form?
8027
The position of the IRS in handling overpayments is spelled out in a private letter ruling. What is the number of this private letter ruling?
9103031
Employers can exclude the value of an employee discount from the employee's wages up to what limit? Use letters in alphabetical order to select options A 20% of the price charged non-employee customers. B 10% of the price charged non-employee customers. C 15% of the price charged non-employee customers. D 25% of the price charged non-employee customers.
A 20% of the price charged non-employee customers.
hich of the following club memberships are considered nontaxable wages to the employee if paid by the employer? Use letters in alphabetical order to select options A Trade associations. B Country clubs. C Airline clubs. D Golf clubs.
A Trade associations.
Nontaxable Compensation
Achievement awards Athletic facilities Cell phones Director's fees Lodging on the business premises
What is the current federal supplemental tax rate for employees whose supplemental wage payments exceed $1,000,000?
B 39.5%
Military Duty Pay Differential is subject to what taxation on the federal level? A FIT, FICA, and FUTA. B FIT Only. C FICA only. D FICA and FUTA only.
B FIT Only.
In terms of taxable wages, the term FMV stands for? A Federal Market Value. B Fair Market Value. C Fair Minimum Value. D Federal Maximum Value.
B Fair Market Value.
How long may a work assignment be to qualify as a temporary work assignment?
B One year or less.
Taxable Compensation—Adjustments to Pay
Back pay awards (includes cases in which an employee has won a suit of unlawful termination). Advances on commissions or other pay. Jury duty pay (though it's not subject to withholding). Stipends (a fixed sum paid periodically for services or to defray expenses). Withholding for idle time (includes when an employee was reinstated after being dismissed without cause).
Perks that come with a job that are taxable
Bonuses, prizes, and awards Holiday or Christmas gifts Membership and club dues
A payment made to a deceased employee in the year of death is reported on what federal form?
Both Form W-2 and Form 1099-MISC.
Which of the following is NOT a method to determine the taxation period for an employee who is being paid for a period that is unrelated to a specific length of time? Count back the number of days from the payment period to the latest of: Use letters in alphabetical order to select options A The last wage payment made during the same calendar year. B The date employment began, if during the same calendar year. C The last time the employee completed a Form W-4. D January 1 of the same year.
C The last time the employee completed a Form W-4.
Federal income tax
Collect for the entire year on all wages and tips
Medicare tax
Collect for the entire year on all wages and tips
Social Security tax
Collect until annual limit is reached (in 2015, the limit is $118,500)
What employees are eligible for this?
Current employees, former employees, or leased employees who have worked in a full-time capacity for at least a year.
A payment made to a deceased employee in the year of death is subject to which federal taxes?
FICA and FUTA only.
According to the Heroes Earnings Assistance and Relief Tax Act of 2008:
Federal income tax must be withheld from the payment. FICA tax will not be withheld. FUTA tax will not be paid by the employer on the amount. The differential wage payments must be reported on the employee's Form W-2 in Box 1.
Is a Per Diem Taxable?
If the per diem exceeds the amount specified by the federal government, then the excess amount must be reported as wages. The nontaxable portion would be reported in Box 12 of Form W-2, using code L.
On which federal form would you report a payment made to a deceased employee in the year after death is reported?
Form 1099-MISC.
Where do you report these taxes?
Form 941
How employer loan works:
If . . . The employer lends more than $10,000 to an employee, And . . . The interest rate is less than the current applicable federal rate (AFR), Then . . . The difference between the interest paid and the AFR is subject to Social Security, Medicare, and FUTA taxes (but not federal income tax).
Payment Due in Year of Death
If a payment is made to a beneficiary or the employee's estate in the same calendar year as the employee's death, then: Federal income tax is not withheld. FICA and FUTA tax are still owed.
Excess Parachute Payment
If the golden parachute payment equals or exceeds three times the average annual compensation of the employee over the previous five years, then there are additional taxes—a 20% nondeductible excise tax.
Combining Awards With Qualified Plan Awards So, what if an employee receives one award that's not part of a qualified award plan and one that is?
In this case, you can't exclude more than $1,600 from taxation. You're not permitted to add the $400 and $1,600 limits together. You have to hold to the higher limit of $1,600 total awards for each employee per year.
Which employers must allocate tips?
Large food or beverage establishments.
De Minimis Benefits
Making copies, cell phone use, holiday gifts, Life insurance, meals, parties and picnics, tickets for entertainment or sporting events, transportation fare, and typing.
A payment made to a deceased employee in the year after death is subject to which federal payroll taxes?
None.
Supplemental Wages
Pay beyond base salary or wages such as bonuses and commissions.
FUTA tax
Pay these taxes if the employee reports in writing $20 or more of tips for a month
Sometimes, a company will still owe payments in the year after an employee has died—such as bonuses that are calculated only after year-end or commissions at the end of a project. These payments are issued out of accounts payable and are not subject to withholding for federal income tax, FICA taxes, or FUTA tax.
Reporting These Payments:Issue Form 1099-MISC to the beneficiary if the amount is more than $600. Enter the amount in box 3, and use the name and TIN of the recipient on the form.
Leave-Sharing Plans
Some employers allow employees to donate their leave to other employees for medical emergencies. This is referred to as a leave-sharing plan. In these cases, the amount paid to the recipients is considered wages, and therefore, it's taxable. That means it's subject to FICA, FUTA, and federal income tax withholding.
These conditions apply:
The employee must be on active duty for more than 30 days. The payment represents all or a portion of the wages the employee would've received if working for the employer.
For a cell phone to be nontaxable
The employee must communicate with clients outside normal business hours. The basic cover plan must charge a flat-rate per month for certain number of minutes for domestic calls. The employer must reimburse the employee for the monthly basic plan.
De Minimis (Minimal) Benefits
There are some perks that are so small, you don't need to worry about paying taxes on them. These are referred to as de minimis benefits. "De minimis" means "minimal. It just wouldn't be practical to track and tax such small amounts.
Per diem allowance
This is a flat rate made under an accountable plan for lodging, meals, and expenses during business travel.
Length of Service and Safety achievement
To be nontaxable, these awards must be tangible personal property—for example, jewelry or a clock. Cash awards and cash equivalents or intangible property (vacations, meals, theater tickets, stocks, and bonds, and so forth) are taxable.
Reporting Golden Parachute Payments
You'll need to report golden parachute payments on Form W-2: Report the payment in Box 12 using Code K. If excess payments are considered wages, report the 20% excise tax as income tax withheld in Box 2. For non-employee reporting of these payments, see Box 7 in the instructions for Form 1099-MISC.
The payment is not considered wages to the beneficiary, which is why income tax isn't withheld. But the beneficiary will need to report the income on the tax return for that calendar year.
You'll need to report these payments on two forms: Form W2 and Form 1099-MISC
Overpayments are considered ____________ by the Department of Labor?
an advance on wages
Employer Loans
an employer may choose to make a loan to an employee that's either interest-free or at a below-market interest rate. Since the employee is avoiding paying some or all of the market-rate interest, we count that amount as income—and it's taxable.
Golden parachute payment
is a contract a company makes with key personnel to protect them if the company changes ownership. Essentially, it's a form of termination pay. It's subject to FICA, FUTA, and federal income tax withholding.
Qualified Award Plans
refers to a written plan that doesn't discriminate in favor of highly compensated individuals.
Military Duty Pay Differential
refers to the amount an employer pays to an employee while that employee serves in the military