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Income tax preparation software Publication 571 - Introductory Material Table of Contents Future Developments What's New for 2013 What's New for 2014 Reminder IntroductionOrdering forms and publications. Income tax preparation software Tax questions. Income tax preparation software Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 571 and its instructions, such as legislation enacted after they were published, go to www. Income tax preparation software irs. Income tax preparation software gov/pub571. Income tax preparation software What's New for 2013 Retirement savings contributions credit. Income tax preparation software  For 2013, the adjusted gross income limitations have increased from $57,500 to $59,000 for married filing jointly filers, from $43,125 to $44,250 for head of household filers, and from $28,750 to $29,500 for single, married filing separately, or qualifying widow(er) with dependent child filers. Income tax preparation software See chapter 10, Retirement Savings Contributions Credit (Saver's Credit), for additional information. Income tax preparation software Limit on elective deferrals. Income tax preparation software  For 2013, the limit on elective deferrals has increased from $17,000 to $17,500. Income tax preparation software Limit on annual additions. Income tax preparation software  For 2013, the limit on annual additions has increased from $50,000 to $51,000. Income tax preparation software What's New for 2014 Retirement savings contributions credit. Income tax preparation software  For 2014, the adjusted gross income limitations have increased from $59,000 to $60,000 for married filing jointly filers, from $44,250 to $45,000 for head of household filers, and from $29,500 to $30,000 for single, married filing separately, or qualifying widow(er) with dependent child filers. Income tax preparation software See chapter 10, Retirement Savings Contributions Credit (Saver's Credit), for additional information. Income tax preparation software Limit on elective deferrals. Income tax preparation software  For 2014, the limit on elective deferrals remains unchanged at $17,500. Income tax preparation software Limit on annual additions. Income tax preparation software  For 2014, the limit on annual additions has increased from $51,000 to $52,000. Income tax preparation software Reminder Photographs of missing children. Income tax preparation software  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Income tax preparation software Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Income tax preparation software You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Income tax preparation software Introduction This publication can help you better understand the tax rules that apply to your 403(b) (tax-sheltered annuity) plan. Income tax preparation software In this publication, you will find information to help you: Determine the maximum amount that can be contributed to your 403(b) account in 2014. Income tax preparation software Determine the maximum amount that could have been contributed to your 403(b) account in 2013. Income tax preparation software Identify excess contributions. Income tax preparation software Understand the basic rules for claiming the retirement savings contributions credit. Income tax preparation software Understand the basic rules for distributions and rollovers from 403(b) accounts. Income tax preparation software This publication does not provide specific information on the following topics. Income tax preparation software Distributions from 403(b) accounts. Income tax preparation software This is covered in Publication 575, Pension and Annuity Income. Income tax preparation software Rollovers. Income tax preparation software This is covered in Publication 590, Individual Retirement Arrangements (IRAs). Income tax preparation software How to use this publication. Income tax preparation software   This publication is organized into chapters to help you find information easily. Income tax preparation software    Chapter 1 answers questions frequently asked by 403(b) plan participants. Income tax preparation software    Chapters 2 through 6 explain the rules and terms you need to know to figure the maximum amount that could have been contributed to your 403(b) account for 2013 and the maximum amount that can be contributed to your 403(b) account in 2014. Income tax preparation software    Chapter 7 provides general information on the prevention and correction of excess contributions to your 403(b) account. Income tax preparation software    Chapter 8 provides general information on distributions, transfers, and rollovers. Income tax preparation software    Chapter 9 provides blank worksheets that you will need to accurately and actively participate in your 403(b) plan. Income tax preparation software Filled-in samples of most of these worksheets can be found throughout this publication. Income tax preparation software    Chapter 10 explains the rules for claiming the retirement savings contributions credit (saver's credit). Income tax preparation software Comments and suggestions. Income tax preparation software   We welcome your comments about this publication and your suggestions for future editions. Income tax preparation software   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Income tax preparation software NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Income tax preparation software Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Income tax preparation software   You can send your comments from www. Income tax preparation software irs. Income tax preparation software gov/formspubs/. Income tax preparation software Click on “More Information” and then on “Comment on Tax Forms and Publications. Income tax preparation software ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Income tax preparation software Ordering forms and publications. Income tax preparation software   Visit www. Income tax preparation software irs. Income tax preparation software gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Income tax preparation software  Internal Revenue Service 1201 N. Income tax preparation software Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Income tax preparation software   If you have a tax question, check the information available on IRS. Income tax preparation software gov or call 1-800-829-1040. Income tax preparation software We cannot answer tax questions sent to either of the above addresses. Income tax preparation software Useful Items - You may want to see: Publication 517 Social Security and Other Information for Members of the Clergy and Religious Workers 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) Form (and Instructions) W-2 Wage and Tax Statement 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Income tax preparation software 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 5330 Return of Excise Taxes Related to Employee Benefit Plans Prev  Up  Next   Home   More Online Publications
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Questions and Answers on the Individual Shared Responsibility Provision


Basic Information

1. What is the individual shared responsibility provision?

Under the Affordable Care Act, the federal government, state governments, insurers, employers and individuals are given shared responsibility to reform and improve the availability, quality and affordability of health insurance coverage in the United States. Starting in 2014, the individual shared responsibility provision calls for each individual to have minimum essential health coverage (known as minimum essential coverage) for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return.

2. Who is subject to the individual shared responsibility provision?

The provision applies to individuals of all ages, including children. The adult or married couple who can claim a child or another individual as a dependent for federal income tax purposes is responsible for making the payment if the dependent does not have coverage or an exemption.

3. When does the individual shared responsibility provision go into effect?

The provision goes into effect on Jan. 1, 2014. It applies to each month in the calendar year. 

4.  Is transition relief available in certain circumstances?

Yes. Notice 2013-42, published on June 26, 2013, provides transition relief from the shared responsibility payment for individuals who are eligible to enroll in eligible employer-sponsored health plans with a plan year other than a calendar year (non-calendar year plans) if the plan year begins in 2013 and ends in 2014 (2013-2014 plan year). The transition relief applies to an employee, or an individual having a relationship to the employee. The transition relief begins in January 2014 and continues through the month in which the 2013-2014 plan year ends.

In addition, Notice 2014-10, published on Jan. 23, 2014, provides transition relief for individuals covered under certain limited-benefit government-sponsored programs. Coverage under these programs is not minimum essential coverage unless it is designated as such by the Department of Health and Human Services. Under Notice 2014-10, individuals who have coverage under these government-sponsored programs will not be held liable for the shared responsibility payment for months in 2014 when they have that coverage. The specific government-sponsored programs are optional family planning coverage of family services under title XIX of the Social Security Act, optional coverage of tuberculosis-related services under title XIX of the Social Security Act, coverage of pregnancy-related services under title XIX of the Social Security Act, coverage limited to treatment of emergency medical conditions (in accordance with section 1611(b)(12)(A) of title 8 of the United States Code) under title XIX of the Social Security Act, coverage for medically needy individuals under title XIX of the Social Security Act, coverage authorized under section 1115(a)(2) of the Social Security Act, limited-benefit TRICARE coverage of space available care provided under chapter 55 of title 10 of the United States Code and limited-benefit TRICARE coverage of line of duty care under chapter 55 of title 10 of the United States Code.  

5. What counts as minimum essential coverage?

Minimum essential coverage includes the following:

  • Employer-sponsored coverage, including self-insured plans, COBRA coverage and retiree coverage
  • Coverage purchased in the individual market, including a qualified health plan offered by the Health Insurance Marketplace 
  • Medicare Part A coverage and Medicare Advantage plans
  • Most Medicaid coverage
  • Children's Health Insurance Program (CHIP) coverage
  • Certain types of veterans health coverage administered by the Veterans Administration
  • Most types of TRICARE coverage under chapter 55 of title 10 of the United States Code
  • Coverage provided to Peace Corps volunteers
  • Coverage under the Nonappropriated Fund Health Benefit Program
  • Refugee Medical Assistance supported by the Administration for Children and Families
  • Self-funded health coverage offered to students by universities for plan or policy years that begin on or before Dec. 31, 2014 (for later plan or policy years, sponsors of these programs may apply to HHS to be recognized as minimum essential coverage)
  • State high risk pools for plan or policy years that begin on or before Dec. 31, 2014 (for later plan or policy years, sponsors of these program may apply to HHS to be recognized as minimum essential coverage)
  • Other coverage recognized by the Secretary of HHS as minimum essential coverage

Minimum essential coverage does not include coverage providing only limited benefits, such as the following:

  • Coverage consisting solely of excepted benefits, such as:
    • Stand-alone vision care or dental care
    • Workers' compensation
    • Accident or disability policies
  • Medicaid providing only family planning services
  • Medicaid providing only tuberculosis-related services
  • Medicaid providing only coverage limited to treatment of emergency medical conditions
  •  Pregnancy-related Medicaid coverage*
  • Medicaid coverage for the medically needy*
  • Section 1115 Medicaid demonstration projects*
  • Space available TRICARE coverage provided under chapter 55 of title 10 of the United States Code for individuals who are not eligible for TRICARE coverage for health care services from private sector providers*
  • Line of duty TRICARE coverage provided under chapter 55 of title 10 of the United States Code*

* These categories of coverage are generally not minimum essential coverage. However, to the extent that certain programs within these categories provide comprehensive coverage, the Secretary of HHS may recognize these programs as minimum essential coverage in the future. The IRS in Notice 2014-10 announced relief from the shared responsibility payment for months in 2014 in which individuals are covered under any of these programs to the extent that they are not minimum essential coverage. Information will be made available later about how the income tax return will take account of coverage under one of these programs. 

6. What are the statutory exemptions from the requirement to obtain minimum essential coverage?

  1. Religious conscience. You are a member of a religious sect that is recognized as conscientiously opposed to accepting any insurance benefits. The Social Security Administration administers the process for recognizing these sects according to the criteria in the law.
  2. Health care sharing ministry. You are a member of a recognized health care sharing ministry.
  3. Indian tribes. You are (1) a member of a federally recognized Indian tribe or (2) an individual eligible for services through an Indian care provider.
  4. Income below the income tax return filing requirement. Your income is below the minimum threshold for filing a tax return. The requirement to file a federal tax return depends on your filing status, age and types and amounts of income. To find out if you are required to file a federal tax return, use the IRS Interactive Tax Assistant (ITA).
  5. Short coverage gap. You went without coverage for less than three consecutive months during the year. For more information, see question 22.
  6. Hardship. You have suffered a hardship that makes you unable to obtain coverage, as defined in final regulations issued by the Department of Health and Human Services. See question 21 for more information on claiming hardship exemptions..
  7. Affordability. You can’t afford coverage because the minimum amount you must pay for the premiums is more than eight percent of your household income.
  8. Incarceration. You are in a jail, prison, or similar penal institution or correctional facility after the disposition of charges against you.
  9. Not lawfully present. You are not a U.S. citizen, a U.S. national or an alien lawfully present in the U.S.

7. What do I need to do if I want to be sure I have minimum essential coverage or an exemption for 2014?

The vast majority of coverage that people have today counts as minimum essential coverage. For those who do not have coverage, who anticipate discontinuing the coverage they have currently, or who want to explore whether more affordable options are available, the Health Insurance Marketplace is open in every state and the District of Columbia. The Marketplace helps individuals compare available coverage options, assess their eligibility for financial assistance and find minimum essential coverage that fits their budget.

For those seeking an exemption from the individual responsibility provision, the Marketplace is able to provide certificates of exemption for many of the exemption categories. HHS has issued final regulations on how the Health Insurance Marketplace grants these exemptions. Individuals will also be able to claim certain exemptions for 2014 when they file their federal income tax returns in 2015. Individuals who are not required to file a federal income tax return because their gross income falls below the return filing threshold do not need to take any further action to secure an exemption. See question 21 for further information on how to claim an exemption.

For more information about the Marketplace, visit the Health Insurance Marketplace website. For more information about financial assistance, see our Questions and Answers on the premium tax credit.

8. Is more detailed information available about the individual shared responsibility provision?

Yes. The Treasury Department and the IRS have issued final regulations on the new individual shared responsibility provision, and the IRS has created an individual shared responsibility page. In addition, the Treasury Department and the IRS have issued proposed regulations, which provide guidance on additional issues that were identified in the preamble to the final regulations. Additional information on exemptions and minimum essential coverage is available in final regulations issued by the Department of Health and Human Services and in a Shared Responsibility Provision Question and Answer issued by the Centers for Medicare & Medicaid Services

Who is Affected?

9. Are children subject to the individual shared responsibility provision?

Yes. Each child must have minimum essential coverage or qualify for an exemption for each month in the calendar year. Otherwise, the adult or married couple who can claim the child as a dependent for federal income tax purposes will generally owe a shared responsibility payment for the child..

10. Are senior citizens subject to the individual shared responsibility provision?

Yes. Senior citizens must have minimum essential coverage or qualify for an exemption for each month in a calendar year. Both Medicare Part A and Medicare Part C (also known as Medicare Advantage) qualify as minimum essential coverage.  

11. Are all individuals living in the United States subject to the individual shared responsibility provision?

All U.S. citizens living in the United States are subject to the individual shared responsibility provision as are all permanent residents and all foreign nationals who are in the United States long enough during a calendar year to qualify as resident aliens for tax purposes. Foreign nationals who live in the United States for a short enough period that they do not become resident aliens for federal income tax purposes are not subject to the individual shared responsibility payment even though they may have to file a U.S. income tax return. The IRS has more information available on when a foreign national becomes a resident alien for federal income tax purposes.

12. Are US citizens living abroad subject to the individual shared responsibility provision?

Yes. However, U.S. citizens who are not physically present in the United States for at least 330 full days within a 12-month period are treated as having minimum essential coverage for that 12-month period. In addition, U.S. citizens who are bona fide residents of a foreign country (or countries) for an entire taxable year are treated as having minimum essential coverage for that year. In general, these are individuals who qualify for a foreign earned income exclusion under section 911 of the Internal Revenue Code. Individuals may qualify for this rule even if they cannot use the exclusion for all of their foreign earned income because, for example, they are employees of the United States. Individuals that qualify for this rule need take no further action to comply with the individual shared responsibility provision during the months when they qualify. See Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, for further information on the foreign earned income exclusion.  

U.S. citizens who meet neither the physical presence nor residency requirements will need to maintain minimum essential coverage, qualify for an exemption or make a shared responsibility payment for each month of the year. For this purpose, minimum essential coverage includes a group health plan provided by an overseas employer. One exemption that may be particularly relevant to U.S. citizens living abroad for a small part of a year is the exemption for a short coverage gap. This exemption provides that no shared responsibility payment will be due for a once-per-year gap in coverage that lasts less than three months.  

13. Are residents of the territories subject to the individual shared responsibility provision?

All bona fide residents of the United States territories are treated by law as having minimum essential coverage. They are not required to take any action to comply with the individual shared responsibility provision.

Minimum Essential Coverage

14. If I receive my coverage from my spouse’s employer, will I have minimum essential coverage?

Yes. Employer-sponsored coverage is generally minimum essential coverage. (See question 5 for information on specialized types of coverage that are not minimum essential coverage.) If an employee enrolls in employer-sponsored coverage that provides minimum value for himself and his family, the employee and all of the covered family members have minimum essential coverage.

15. Do my spouse and dependent children have to be covered under the same policy or plan that covers me?

No. You, your spouse and your dependent children do not have to be covered under the same policy or plan. However, you, your spouse and each dependent child for whom you may claim a personal exemption on your federal income tax return must have minimum essential coverage or qualify for an exemption, or you will owe a shared responsibility payment when you file a return.

16. My employer tells me that our company’s health plan is “grandfathered.” Does my employer’s plan provide minimum essential coverage?

Yes. Grandfathered group health plans provide minimum essential coverage.

17. I am a retiree, and I am too young to be eligible for Medicare. I receive my health coverage through a retiree plan made available by my former employer. Is the retiree plan minimum essential coverage?

Yes. Retiree health plans are generally minimum essential coverage.

18. I work for a local government that provides me with health coverage. Is my coverage minimum essential coverage?

Yes. Employer-sponsored coverage is minimum essential coverage regardless of whether the employer is a governmental, nonprofit or for-profit entity.

19. Do I have to be covered for an entire calendar month to avoid the shared responsibility payment liability for not having minimum essential coverage for that month?

No. You will be treated as having minimum essential coverage for a month as long as you have coverage for at least one day during that month.

20. If I change health coverage during the year and end up with a gap when I am not covered, will I owe a payment?

Individuals are treated as having minimum essential coverage for a calendar month if they have coverage for at least one day during that month. Additionally, as long as the gap in coverage is less than three months, you may qualify for an exemption and not owe a payment. See question 22 for more information on the exemption for a short coverage gap.

Exemptions

21. If I think I qualify for an exemption, how do I obtain it?

It depends upon the exemption for which you qualify.

  • The religious conscience exemption and most hardship exemptions are available only by going to the Health Insurance Marketplace and applying for an exemption certificate. Information on obtaining these exemptions is available in final rules issued by the Department of Health and Human Services.
  • The exemptions for members of federally recognized Indian tribes, members of health care sharing ministries and individuals who are incarcerated are available either by going to a Marketplace or Exchange and applying for an exemption certificate or by claiming the exemption as part of filing a federal income tax return.
  • The exemptions for lack of affordable coverage, a short coverage gap, certain hardships, household income below the filing threshold and individuals who are not lawfully present in the United States may be claimed only as part of filing a federal income tax return.

22. What qualifies as a short coverage gap?

In general, a gap in coverage that lasts less than three months qualifies as a short coverage gap. If an individual has more than one short coverage gap during a year, the short coverage gap exemption only applies to the first gap.

23. If my income is so low that I am not required to file a federal income tax return, do I need to do anything special to claim an exemption from the individual shared responsibility provision?

No. If you are not required to file a federal income tax return for a year because your gross income is below your return filing threshold, you are automatically exempt from the shared responsibility provision for that year and do not need to take any further action to secure an exemption. If you are not required to file a tax return for a year but file one anyway, you will be able to claim the exemption on your tax return.

24. If I am exempt from the shared responsibility payment, can I still be eligible for the premium tax credit?

In many cases, yes, but it depends upon the exemption. If you are exempt because you are incarcerated or because you are not lawfully present in the United States, you are not eligible to enroll in a qualified health plan through the Marketplace and therefore cannot claim a premium tax credit. However, individuals with other types of exemptions may obtain coverage through the Marketplace and claim a premium tax credit if they otherwise qualify for the credit.

Reporting Coverage or Exemptions or Making Payments

25. Will I have to do something on my federal income tax return to show that I had coverage or an exemption?

The individual shared responsibility provision goes into effect in 2014. You will not have to account for coverage or exemptions or to make any payments until you file your 2014 federal income tax return in 2015. Information will be made available later about how the income tax return will take account of coverage and exemptions. Insurers will be required to provide everyone that they cover each year with information that will help them demonstrate they had coverage beginning with the 2015 tax year.

26. What happens if I do not have minimum essential coverage or an exemption, and I cannot afford to make the shared responsibility payment when filing my tax return?

The IRS routinely works with taxpayers who owe amounts they cannot afford to pay. The law prohibits the IRS from using liens or levies to collect any individual shared responsibility payment. However, if you owe a shared responsibility payment, the IRS may offset that liability against any tax refund that may be due to you.

Page Last Reviewed or Updated: 25-Mar-2014

The Income Tax Preparation Software

Income tax preparation software Publication 15-B - Main Content Table of Contents 1. Income tax preparation software Fringe Benefit OverviewAre Fringe Benefits Taxable? Cafeteria Plans Simple Cafeteria Plans 2. Income tax preparation software Fringe Benefit Exclusion RulesAccident and Health Benefits Achievement Awards Adoption Assistance Athletic Facilities De Minimis (Minimal) Benefits Dependent Care Assistance Educational Assistance Employee Discounts Employee Stock Options Employer-Provided Cell Phones Group-Term Life Insurance Coverage Health Savings Accounts Lodging on Your Business Premises Meals Moving Expense Reimbursements No-Additional-Cost Services Retirement Planning Services Transportation (Commuting) Benefits Tuition Reduction Working Condition Benefits 3. Income tax preparation software Fringe Benefit Valuation RulesGeneral Valuation Rule Cents-Per-Mile Rule Commuting Rule Lease Value Rule Unsafe Conditions Commuting Rule 4. Income tax preparation software Rules for Withholding, Depositing, and ReportingTransfer of property. Income tax preparation software Amount of deposit. Income tax preparation software Limitation. Income tax preparation software Conformity rules. Income tax preparation software Election not to withhold income tax. Income tax preparation software How To Get Tax Help 1. Income tax preparation software Fringe Benefit Overview A fringe benefit is a form of pay for the performance of services. Income tax preparation software For example, you provide an employee with a fringe benefit when you allow the employee to use a business vehicle to commute to and from work. Income tax preparation software Performance of services. Income tax preparation software   A person who performs services for you does not have to be your employee. Income tax preparation software A person may perform services for you as an independent contractor, partner, or director. Income tax preparation software Also, for fringe benefit purposes, treat a person who agrees not to perform services (such as under a covenant not to compete) as performing services. Income tax preparation software Provider of benefit. Income tax preparation software   You are the provider of a fringe benefit if it is provided for services performed for you. Income tax preparation software You are considered the provider of a fringe benefit even if a third party, such as your client or customer, provides the benefit to your employee for services the employee performs for you. Income tax preparation software For example, if, in exchange for goods or services, your customer provides day care services as a fringe benefit to your employees for services they provide for you as their employer, then you are the provider of this fringe benefit even though the customer is actually providing the day care. Income tax preparation software Recipient of benefit. Income tax preparation software   The person who performs services for you is considered the recipient of a fringe benefit provided for those services. Income tax preparation software That person may be considered the recipient even if the benefit is provided to someone who did not perform services for you. Income tax preparation software For example, your employee may be the recipient of a fringe benefit you provide to a member of the employee's family. Income tax preparation software Are Fringe Benefits Taxable? Any fringe benefit you provide is taxable and must be included in the recipient's pay unless the law specifically excludes it. Income tax preparation software Section 2 discusses the exclusions that apply to certain fringe benefits. Income tax preparation software Any benefit not excluded under the rules discussed in section 2 is taxable. Income tax preparation software Including taxable benefits in pay. Income tax preparation software   You must include in a recipient's pay the amount by which the value of a fringe benefit is more than the sum of the following amounts. Income tax preparation software Any amount the law excludes from pay. Income tax preparation software Any amount the recipient paid for the benefit. Income tax preparation software The rules used to determine the value of a fringe benefit are discussed in section 3. Income tax preparation software   If the recipient of a taxable fringe benefit is your employee, the benefit is subject to employment taxes and must be reported on Form W-2, Wage and Tax Statement. Income tax preparation software However, you can use special rules to withhold, deposit, and report the employment taxes. Income tax preparation software These rules are discussed in section 4. Income tax preparation software   If the recipient of a taxable fringe benefit is not your employee, the benefit is not subject to employment taxes. Income tax preparation software However, you may have to report the benefit on one of the following information returns. Income tax preparation software If the recipient receives the benefit as: Use: An independent contractor Form 1099-MISC, Miscellaneous Income A partner Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Income tax preparation software For more information, see the instructions for the forms listed above. Income tax preparation software Cafeteria Plans A cafeteria plan, including a flexible spending arrangement, is a written plan that allows your employees to choose between receiving cash or taxable benefits instead of certain qualified benefits for which the law provides an exclusion from wages. Income tax preparation software If an employee chooses to receive a qualified benefit under the plan, the fact that the employee could have received cash or a taxable benefit instead will not make the qualified benefit taxable. 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Income tax preparation software Distributions from an HSA may be used to pay eligible long-term care insurance premiums or qualified long-term care services. Income tax preparation software Benefits not allowed. Income tax preparation software   A cafeteria plan cannot include the following benefits discussed in section 2. Income tax preparation software Archer MSAs. Income tax preparation software See Accident and Health Benefits in section 2. Income tax preparation software Athletic facilities. Income tax preparation software De minimis (minimal) benefits. Income tax preparation software Educational assistance. Income tax preparation software Employee discounts. Income tax preparation software Employer-provided cell phones. Income tax preparation software Lodging on your business premises. Income tax preparation software Meals. Income tax preparation software Moving expense reimbursements. Income tax preparation software No-additional-cost services. Income tax preparation software Transportation (commuting) benefits. Income tax preparation software Tuition reduction. Income tax preparation software Working condition benefits. Income tax preparation software It also cannot include scholarships or fellowships (discussed in Publication 970, Tax Benefits for Education). Income tax preparation software $2,500 limit on a health flexible spending arrangement (FSA). Income tax preparation software   For plan years beginning after December 31, 2012, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $2,500. Income tax preparation software For plan years beginning after December 31, 2013, the limit is unchanged at $2,500. Income tax preparation software   A cafeteria plan offering a health FSA must be amended to specify the $2,500 limit (or any lower limit set by the employer). Income tax preparation software While cafeteria plans generally must be amended on a prospective basis, an amendment that is adopted on or before December 31, 2014, may be made effective retroactively, provided that in operation the cafeteria plan meets the limit for plan years beginning after December 31, 2012. Income tax preparation software A cafeteria plan that does not limit health FSA contributions to the dollar limit is not a cafeteria plan and all benefits offered under the plan are includible in the employee's gross income. Income tax preparation software   For more information, see Notice 2012-40, 2012-26 I. Income tax preparation software R. Income tax preparation software B. Income tax preparation software 1046, available at www. Income tax preparation software irs. Income tax preparation software gov/irb/2012-26_IRB/ar09. Income tax preparation software html. Income tax preparation software Employee. Income tax preparation software   For these plans, treat the following individuals as employees. Income tax preparation software A current common-law employee. Income tax preparation software See section 2 in Publication 15 (Circular E) for more information. Income tax preparation software A full-time life insurance agent who is a current statutory employee. Income tax preparation software 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 primary direction or control. Income tax preparation software Exception for S corporation shareholders. Income tax preparation software   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Income tax preparation software A 2% shareholder for this purpose is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Income tax preparation software 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. Income tax preparation software Plans that favor highly compensated employees. Income tax preparation software   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. Income tax preparation software A plan you maintain under a collective bargaining agreement does not favor highly compensated employees. Income tax preparation software   A highly compensated employee for this purpose is any of the following employees. Income tax preparation software An officer. Income tax preparation software A shareholder who owns more than 5% of the voting power or value of all classes of the employer's stock. Income tax preparation software An employee who is highly compensated based on the facts and circumstances. Income tax preparation software A spouse or dependent of a person described in (1), (2), or (3). Income tax preparation software Plans that favor key employees. Income tax preparation software   If your plan favors key employees, you must include in their wages the value of taxable benefits they could have selected. Income tax preparation software A plan favors key employees if more than 25% of the total of the nontaxable benefits you provide for all employees under the plan go to key employees. Income tax preparation software However, a plan you maintain under a collective bargaining agreement does not favor key employees. Income tax preparation software   A key employee during 2014 is generally an employee who is either of the following. Income tax preparation software An officer having annual pay of more than $170,000. Income tax preparation software An employee who for 2014 is either of the following. Income tax preparation software A 5% owner of your business. Income tax preparation software A 1% owner of your business whose annual pay was more than $150,000. Income tax preparation software Simple Cafeteria Plans Eligible employers meeting contribution requirements and eligibility and participation requirements can establish a simple cafeteria plan. Income tax preparation software Simple cafeteria plans are treated as meeting the nondiscrimination requirements of a cafeteria plan and certain benefits under a cafeteria plan. Income tax preparation software Eligible employer. Income tax preparation software   You are an eligible employer if you employ an average of 100 or fewer employees during either of the 2 preceding years. Income tax preparation software If your business was not in existence throughout the preceding year, you are eligible if you reasonably expect to employ an average of 100 or fewer employees in the current year. Income tax preparation software If you establish a simple cafeteria plan in a year that you employ an average of 100 or fewer employees, you are considered an eligible employer for any subsequent year as long as you do not employ an average of 200 or more employees in a subsequent year. Income tax preparation software Eligibility and participation requirements. Income tax preparation software   These requirements are met if all employees who had at least 1,000 hours of service for the preceding plan year are eligible to participate and each employee eligible to participate in the plan may elect any benefit available under the plan. Income tax preparation software You may elect to exclude from the plan employees who: Are under age 21 before the close of the plan year, Have less than 1 year of service with you as of any day during the plan year, Are covered under a collective bargaining agreement, or Are nonresident aliens working outside the United States whose income did not come from a U. Income tax preparation software S. Income tax preparation software source. Income tax preparation software Contribution requirements. Income tax preparation software   You must make a contribution to provide qualified benefits on behalf of each qualified employee in an amount equal to: A uniform percentage (not less than 2%) of the employee’s compensation for the plan year, or An amount which is at least 6% of the employee’s compensation for the plan year or twice the amount of the salary reduction contributions of each qualified employee, whichever is less. Income tax preparation software If the contribution requirements are met using option (2), the rate of contribution to any salary reduction contribution of a highly compensated or key employee can not be greater than the rate of contribution to any other employee. Income tax preparation software More information. Income tax preparation software   For more information about cafeteria plans, see section 125 of the Internal Revenue Code and its regulations. Income tax preparation software 2. Income tax preparation software Fringe Benefit Exclusion Rules This section discusses the exclusion rules that apply to fringe benefits. Income tax preparation software These rules exclude all or part of the value of certain benefits from the recipient's pay. Income tax preparation software The excluded benefits are not subject to federal income tax withholding. Income tax preparation software 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. Income tax preparation software This section discusses the exclusion rules for the following fringe benefits. Income tax preparation software Accident and health benefits. Income tax preparation software Achievement awards. Income tax preparation software Adoption assistance. Income tax preparation software Athletic facilities. Income tax preparation software De minimis (minimal) benefits. Income tax preparation software Dependent care assistance. Income tax preparation software Educational assistance. Income tax preparation software Employee discounts. Income tax preparation software Employee stock options. Income tax preparation software Employer-provided cell phones. Income tax preparation software Group-term life insurance coverage. Income tax preparation software Health savings accounts (HSAs). Income tax preparation software Lodging on your business premises. Income tax preparation software Meals. Income tax preparation software Moving expense reimbursements. Income tax preparation software No-additional-cost services. Income tax preparation software Retirement planning services. Income tax preparation software Transportation (commuting) benefits. Income tax preparation software Tuition reduction. Income tax preparation software Working condition benefits. Income tax preparation software See Table 2-1, later, for an overview of the employment tax treatment of these benefits. Income tax preparation software Table 2-1. Income tax preparation software Special Rules for Various Types of Fringe Benefits (For more information, see the full discussion in this section. Income tax preparation software ) Treatment Under Employment Taxes Type of Fringe Benefit Income Tax Withholding Social Security and Medicare (including Additional Medicare Tax when wages are paid in excess of $200,000) Federal Unemployment (FUTA) Accident and health benefits Exempt1,2, except for long-term care benefits provided through a flexible spending or similar arrangement. Income tax preparation software Exempt, except for certain payments to S corporation employees who are 2% shareholders. Income tax preparation software Exempt Achievement awards Exempt1 up to $1,600 for qualified plan awards ($400 for nonqualified awards). Income tax preparation software Adoption assistance Exempt1,3 Taxable Taxable Athletic facilities Exempt if substantially all use during the calendar year is by employees, their spouses, and their dependent children and the facility is operated by the employer on premises owned or leased by the employer. Income tax preparation software De minimis (minimal) benefits Exempt Exempt Exempt Dependent care assistance Exempt3 up to certain limits, $5,000 ($2,500 for married employee filing separate return). Income tax preparation software Educational assistance Exempt up to $5,250 of benefits each year. Income tax preparation software (See Educational Assistance , later in this section. Income tax preparation software ) Employee discounts Exempt3 up to certain limits. Income tax preparation software (See Employee Discounts , later in this section. Income tax preparation software ) Employee stock options See Employee Stock Options , later in this section. Income tax preparation software Employer-provided cell phones Exempt if provided primarily for noncompensatory business purposes. Income tax preparation software Group-term life insurance coverage Exempt Exempt1,4, 7 up to cost of $50,000 of coverage. Income tax preparation software (Special rules apply to former employees. Income tax preparation software ) Exempt Health savings accounts (HSAs) Exempt for qualified individuals up to the HSA contribution limits. Income tax preparation software (See Health Savings Accounts , later in this section. Income tax preparation software ) Lodging on your business premises Exempt1 if furnished for your convenience as a condition of employment. Income tax preparation software Meals Exempt if furnished on your business premises for your convenience. Income tax preparation software Exempt if de minimis. Income tax preparation software Moving expense reimbursements Exempt1 if expenses would be deductible if the employee had paid them. Income tax preparation software No-additional-cost services Exempt3 Exempt3 Exempt3 Retirement planning services Exempt5 Exempt5 Exempt5 Transportation (commuting) benefits Exempt1 up to certain limits if for rides in a commuter highway vehicle and/or transit passes ($130), qualified parking ($250), or qualified bicycle commuting reimbursement6 ($20). Income tax preparation software (See Transportation (Commuting) Benefits , later in this section. Income tax preparation software ) Exempt if de minimis. Income tax preparation software Tuition reduction Exempt3 if for undergraduate education (or graduate education if the employee performs teaching or research activities). Income tax preparation software Working condition benefits Exempt Exempt Exempt 1 Exemption does not apply to S corporation employees who are 2% shareholders. Income tax preparation software 2 Exemption does not apply to certain highly compensated employees under a self-insured plan that favors those employees. Income tax preparation software 3 Exemption does not apply to certain highly compensated employees under a program that favors those employees. Income tax preparation software 4 Exemption does not apply to certain key employees under a plan that favors those employees. Income tax preparation software 5 Exemption does not apply to services for tax preparation, accounting, legal, or brokerage services. Income tax preparation software 6 If the employee receives a qualified bicycle commuting reimbursement in a qualified bicycle commuting month, the employee cannot receive commuter highway vehicle, transit pass, or qualified parking benefits in that same month. Income tax preparation software 7 You must include in your employee's wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. Income tax preparation software Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Income tax preparation software Also, show it in box 12 with code “C. Income tax preparation software ” The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax. Income tax preparation software Accident and Health Benefits This exclusion applies to contributions you make to an accident or health plan for an employee, including the following. Income tax preparation software Contributions to the cost of accident or health insurance including qualified long-term care insurance. Income tax preparation software Contributions to a separate trust or fund that directly or through insurance provides accident or health benefits. Income tax preparation software Contributions to Archer MSAs or health savings accounts (discussed in Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans). Income tax preparation software This exclusion also applies to payments you directly or indirectly make to an employee under an accident or health plan for employees that are either of the following. Income tax preparation software Payments or reimbursements of medical expenses. Income tax preparation software Payments for specific injuries or illnesses (such as the loss of the use of an arm or leg). Income tax preparation software The payments must be figured without regard to any period of absence from work. Income tax preparation software Accident or health plan. Income tax preparation software   This is an arrangement that provides benefits for your employees, their spouses, their dependents, and their children (under age 27) in the event of personal injury or sickness. Income tax preparation software The plan may be insured or noninsured and does not need to be in writing. Income tax preparation software Employee. Income tax preparation software   For this exclusion, treat the following individuals as employees. Income tax preparation software A current common-law employee. Income tax preparation software A full-time life insurance agent who is a current statutory employee. Income tax preparation software A retired employee. Income tax preparation software A former employee you maintain coverage for based on the employment relationship. Income tax preparation software A widow or widower of an individual who died while an employee. Income tax preparation software A widow or widower of a retired employee. Income tax preparation software For the exclusion of contributions to an accident or health plan, 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 primary direction or control. Income tax preparation software Special rule for certain government plans. Income tax preparation software   For certain government accident and health plans, payments to a deceased plan participant's beneficiary may qualify for the exclusion from gross income if the other requirements for exclusion are met. Income tax preparation software See section 105(j) for details. Income tax preparation software Exception for S corporation shareholders. Income tax preparation software   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Income tax preparation software A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Income tax preparation software 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. Income tax preparation software Exclusion from wages. Income tax preparation software   You can generally exclude the value of accident or health benefits you provide to an employee from the employee's wages. Income tax preparation software Exception for certain long-term care benefits. Income tax preparation software   You cannot exclude contributions to the cost of long-term care insurance from an employee's wages subject to federal income tax withholding if the coverage is provided through a flexible spending or similar arrangement. Income tax preparation software This is a benefit program that reimburses specified expenses up to a maximum amount that is reasonably available to the employee and is less than five times the total cost of the insurance. Income tax preparation software However, you can exclude these contributions from the employee's wages subject to social security, Medicare, and federal unemployment (FUTA) taxes. Income tax preparation software S corporation shareholders. Income tax preparation software   Because you cannot treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the value of accident or health benefits you provide to the employee in the employee's wages subject to federal income tax withholding. Income tax preparation software However, you can exclude the value of these benefits (other than payments for specific injuries or illnesses) from the employee's wages subject to social security, Medicare, and FUTA taxes. Income tax preparation software Exception for highly compensated employees. Income tax preparation software   If your plan is a self-insured medical reimbursement plan that favors highly compensated employees, you must include all or part of the amounts you pay to these employees in their wages subject to federal income tax withholding. Income tax preparation software However, you can exclude these amounts (other than payments for specific injuries or illnesses) from the employee's wages subject to social security, Medicare, and FUTA taxes. Income tax preparation software   A self-insured plan is a plan that reimburses your employees for medical expenses not covered by an accident or health insurance policy. Income tax preparation software   A highly compensated employee for this exception is any of the following individuals. Income tax preparation software One of the five highest paid officers. Income tax preparation software An employee who owns (directly or indirectly) more than 10% in value of the employer's stock. Income tax preparation software An employee who is among the highest paid 25% of all employees (other than those who can be excluded from the plan). Income tax preparation software   For more information on this exception, see section 105(h) of the Internal Revenue Code and its regulations. Income tax preparation software COBRA premiums. Income tax preparation software   The exclusion for accident and health benefits applies to amounts you pay to maintain medical coverage for a current or former employee under the Combined Omnibus Budget Reconciliation Act of 1986 (COBRA). Income tax preparation software The exclusion applies regardless of the length of employment, whether you directly pay the premiums or reimburse the former employee for premiums paid, and whether the employee's separation is permanent or temporary. Income tax preparation software Achievement Awards This exclusion applies to the value of any tangible personal property you give to an employee as an award for either length of service or safety achievement. Income tax preparation software The exclusion 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. Income tax preparation software The award must meet the requirements for employee achievement awards discussed in chapter 2 of Publication 535, Business Expenses. Income tax preparation software Employee. Income tax preparation software   For this exclusion, treat the following individuals as employees. Income tax preparation software A current employee. Income tax preparation software A former common-law employee you maintain coverage for in consideration of or based on an agreement relating to prior service as an employee. Income tax preparation software 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 primary direction or control. Income tax preparation software Exception for S corporation shareholders. Income tax preparation software   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Income tax preparation software A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Income tax preparation software 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. Income tax preparation software Exclusion from wages. Income tax preparation software   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. Income tax preparation software The excludable annual amount is $1,600 ($400 for awards that are not “qualified plan awards”). Income tax preparation software See chapter 2 of Publication 535 for more information about the limit on deductions for employee achievement awards. Income tax preparation software    To determine for 2014 whether an achievement award is a “qualified plan award” under the deduction rules described in Publication 535, treat any employee who received more than $115,000 in pay for 2013 as a highly compensated employee. Income tax preparation software   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. Income tax preparation software The part of the cost that is more than your allowable deduction (up to the value of the awards). Income tax preparation software The amount by which the value of the awards exceeds your allowable deduction. Income tax preparation software Exclude the remaining value of the awards from the employee's wages. Income tax preparation software Adoption Assistance An adoption assistance program is a separate written plan of an employer that meets all of the following requirements. Income tax preparation software It benefits employees who qualify under rules set up by you, which do not favor highly compensated employees or their dependents. Income tax preparation software To determine whether your plan meets this test, do not consider employees excluded from your plan who are covered by a collective bargaining agreement, if there is evidence that adoption assistance was a subject of good-faith bargaining. Income tax preparation software It does not pay more than 5% of its payments during the year for shareholders or owners (or their spouses or dependents). Income tax preparation software 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. Income tax preparation software You give reasonable notice of the plan to eligible employees. Income tax preparation software Employees provide reasonable substantiation that payments or reimbursements are for qualifying expenses. Income tax preparation software For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Income tax preparation software The employee was a 5% owner at any time during the year or the preceding year. Income tax preparation software The employee received more than $115,000 in pay for the preceding year. Income tax preparation software 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. Income tax preparation software You must exclude all payments or reimbursements you make under an adoption assistance program for an employee's qualified adoption expenses from the employee's wages subject to federal income tax withholding. Income tax preparation software However, you cannot exclude these payments from wages subject to social security, Medicare, and federal unemployment (FUTA) taxes. Income tax preparation software For more information, see the Instructions for Form 8839, Qualified Adoption Expenses. Income tax preparation software You must report all qualifying adoption expenses you paid or reimbursed under your adoption assistance program for each employee for the year in box 12 of the employee's Form W-2. Income tax preparation software Use code “T” to identify this amount. Income tax preparation software Exception for S corporation shareholders. Income tax preparation software   For this exclusion, do not treat a 2% shareholder of an S corporation as an employee of the corporation. Income tax preparation software A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Income tax preparation software 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% shareholder. Income tax preparation software 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. Income tax preparation software 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. Income tax preparation software On-premises facility. Income tax preparation software   The athletic facility must be located on premises you own or lease. Income tax preparation software It does not have to be located on your business premises. Income tax preparation software However, the exclusion does not apply to an athletic facility for residential use, such as athletic facilities that are part of a resort. Income tax preparation software Employee. Income tax preparation software   For this exclusion, treat the following individuals as employees. Income tax preparation software A current employee. Income tax preparation software A former employee who retired or left on disability. Income tax preparation software A widow or widower of an individual who died while an employee. Income tax preparation software A widow or widower of a former employee who retired or left on disability. Income tax preparation software 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 primary direction or control. Income tax preparation software A partner who performs services for a partnership. Income tax preparation software De Minimis (Minimal) Benefits You can exclude the value of a de minimis benefit you provide to an employee from the employee's wages. Income tax preparation software A de minimis benefit is any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable. Income tax preparation software Cash and cash equivalent fringe benefits (for example, use of gift card, charge card, or credit card), no matter how little, are never excludable as a de minimis benefit, except for occasional meal money or transportation fare. Income tax preparation software Examples of de minimis benefits include the following. Income tax preparation software Personal use of an employer-provided cell phone provided primarily for noncompensatory business purposes. Income tax preparation software See Employer-Provided Cell Phones , later in this section, for details. Income tax preparation software Occasional personal use of a company copying machine if you sufficiently control its use so that at least 85% of its use is for business purposes. Income tax preparation software Holiday gifts, other than cash, with a low fair market value. Income tax preparation software Group-term life insurance payable on the death of an employee's spouse or dependent if the face amount is not more than $2,000. Income tax preparation software Meals. Income tax preparation software See Meals , later in this section, for details. Income tax preparation software Occasional parties or picnics for employees and their guests. Income tax preparation software Occasional tickets for theater or sporting events. Income tax preparation software Transportation fare. Income tax preparation software See Transportation (Commuting) Benefits , later in this section, for details. Income tax preparation software Employee. Income tax preparation software   For this exclusion, treat any recipient of a de minimis benefit as an employee. Income tax preparation software Dependent Care Assistance This exclusion applies to household and dependent care services you directly or indirectly pay for or provide to an employee under a dependent care assistance program that covers only your employees. Income tax preparation software The services must be for a qualifying person's care and must be provided to allow the employee to work. Income tax preparation software These requirements are basically the same as the tests the employee would have to meet to claim the dependent care credit if the employee paid for the services. Income tax preparation software For more information, see Qualifying Person Test and Work-Related Expense Test in Publication 503, Child and Dependent Care Expenses. Income tax preparation software Employee. Income tax preparation software   For this exclusion, treat the following individuals as employees. Income tax preparation software A current employee. Income tax preparation software 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 primary direction or control. Income tax preparation software Yourself (if you are a sole proprietor). Income tax preparation software A partner who performs services for a partnership. Income tax preparation software Exclusion from wages. Income tax preparation software   You can exclude the value of benefits you provide to an employee under a dependent care assistance program from the employee's wages if you reasonably believe that the employee can exclude the benefits from gross income. Income tax preparation software   An employee can generally exclude from gross income up to $5,000 of benefits received under a dependent care assistance program each year. Income tax preparation software This limit is reduced to $2,500 for married employees filing separate returns. Income tax preparation software   However, the exclusion cannot be more than the smaller of the earned income of either the employee or employee's spouse. Income tax preparation software Special rules apply to determine the earned income of a spouse who is either a student or not able to care for himself or herself. Income tax preparation software For more information on the earned income limit, see Publication 503. Income tax preparation software Exception for highly compensated employees. Income tax preparation software   You cannot exclude dependent care assistance from the wages of a highly compensated employee unless the benefits provided under the program do not favor highly compensated employees and the program meets the requirements described in section 129(d) of the Internal Revenue Code. Income tax preparation software   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Income tax preparation software The employee was a 5% owner at any time during the year or the preceding year. Income tax preparation software The employee received more than $115,000 in pay for the preceding year. Income tax preparation software 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. Income tax preparation software Form W-2. Income tax preparation software   Report the value of all dependent care assistance you provide to an employee under a dependent care assistance program in box 10 of the employee's Form W-2. Income tax preparation software Include any amounts you cannot exclude from the employee's wages in boxes 1, 3, and 5. Income tax preparation software Report both the nontaxable portion of assistance (up to $5,000) and any assistance above the amount that is non-taxable to the employee. Income tax preparation software Example. Income tax preparation software   Company A provides a dependent care assistance flexible spending arrangement to its employees through a cafeteria plan. Income tax preparation software In addition, it provides occasional on-site dependent care to its employees at no cost. Income tax preparation software Emily, an employee of company A, had $4,500 deducted from her pay for the dependent care flexible spending arrangement. Income tax preparation software In addition, Emily used the on-site dependent care several times. Income tax preparation software The fair market value of the on-site care was $700. Income tax preparation software Emily's Form W-2 should report $5,200 of dependent care assistance in box 10 ($4,500 flexible spending arrangement plus $700 on-site dependent care). Income tax preparation software Boxes 1, 3, and 5 should include $200 (the amount in excess of the nontaxable assistance), and applicable taxes should be withheld on that amount. Income tax preparation software Educational Assistance This exclusion applies to educational assistance you provide to employees under an educational assistance program. Income tax preparation software The exclusion also applies to graduate level courses. Income tax preparation software Educational assistance means amounts you pay or incur for your employees' education expenses. Income tax preparation software These expenses generally include the cost of books, equipment, fees, supplies, and tuition. Income tax preparation software However, these expenses do not include the cost of a course or other education involving sports, games, or hobbies, unless the education: Has a reasonable relationship to your business, or Is required as part of a degree program. Income tax preparation software Education expenses do not include the cost of tools or supplies (other than textbooks) your employee is allowed to keep at the end of the course. Income tax preparation software Nor do they include the cost of lodging, meals, or transportation. Income tax preparation software Educational assistance program. Income tax preparation software   An educational assistance program is a separate written plan that provides educational assistance only to your employees. Income tax preparation software The program qualifies only if all of the following tests are met. Income tax preparation software The program benefits employees who qualify under rules set up by you that do not favor highly compensated employees. Income tax preparation software To determine whether your program meets this test, do not consider employees excluded from your program who are covered by a collective bargaining agreement if there is evidence that educational assistance was a subject of good-faith bargaining. Income tax preparation software The program does not provide more than 5% of its benefits during the year for shareholders or owners. Income tax preparation software 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. Income tax preparation software The program does not allow employees to choose to receive cash or other benefits that must be included in gross income instead of educational assistance. Income tax preparation software You give reasonable notice of the program to eligible employees. Income tax preparation software Your program can cover former employees if their employment is the reason for the coverage. Income tax preparation software   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Income tax preparation software The employee was a 5% owner at any time during the year or the preceding year. Income tax preparation software The employee received more than $115,000 in pay for the preceding year. Income tax preparation software 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. Income tax preparation software Employee. Income tax preparation software   For this exclusion, treat the following individuals as employees. Income tax preparation software A current employee. Income tax preparation software A former employee who retired, left on disability, or was laid off. Income tax preparation software 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 primary direction or control. Income tax preparation software Yourself (if you are a sole proprietor). Income tax preparation software A partner who performs services for a partnership. Income tax preparation software Exclusion from wages. Income tax preparation software   You can exclude up to $5,250 of educational assistance you provide to an employee under an educational assistance program from the employee's wages each year. Income tax preparation software Assistance over $5,250. Income tax preparation software   If you do not have an educational assistance plan, or you provide an employee with assistance exceeding $5,250, you must include the value of these benefits as wages, unless the benefits are working condition benefits. Income tax preparation software Working condition benefits may be excluded from wages. Income tax preparation software Property or a service provided is a working condition benefit to the extent that if the employee paid for it, the amount paid would have been deductible as a business or depreciation expense. Income tax preparation software See Working Condition Benefits , later, in this section. Income tax preparation software Employee Discounts This exclusion applies to a price reduction you give an employee on property or services you offer to customers in the ordinary course of the line of business in which the employee performs substantial services. Income tax preparation software However, it does not apply to discounts on real property or discounts on personal property of a kind commonly held for investment (such as stocks or bonds). Income tax preparation software Employee. Income tax preparation software   For this exclusion, treat the following individuals as employees. Income tax preparation software A current employee. Income tax preparation software A former employee who retired or left on disability. Income tax preparation software A widow or widower of an individual who died while an employee. Income tax preparation software A widow or widower of an employee who retired or left on disability. Income tax preparation software 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 primary direction or control. Income tax preparation software A partner who performs services for a partnership. Income tax preparation software Exclusion from wages. Income tax preparation software   You can generally exclude the value of an employee discount you provide an employee from the employee's wages, up to the following limits. Income tax preparation software For a discount on services, 20% of the price you charge nonemployee customers for the service. Income tax preparation software For a discount on merchandise or other property, your gross profit percentage times the price you charge nonemployee customers for the property. Income tax preparation software   Determine your gross profit percentage in the line of business based on all property you offer to customers (including employee customers) and your experience during the tax year immediately before the tax year in which the discount is available. Income tax preparation software To figure your gross profit percentage, 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. Income tax preparation software Exception for highly compensated employees. Income tax preparation software   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. Income tax preparation software All of your employees. Income tax preparation software A group of employees defined under a reasonable classification you set up that does not favor highly compensated employees. Income tax preparation software   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Income tax preparation software The employee was a 5% owner at any time during the year or the preceding year. Income tax preparation software The employee received more than $115,000 in pay for the preceding year. Income tax preparation software 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. Income tax preparation software Employee Stock Options There are three kinds of stock options—incentive stock options, employee stock purchase plan options, and nonstatutory (nonqualified) stock options. Income tax preparation software Wages for social security, Medicare, and federal unemployment (FUTA) taxes do not include remuneration resulting 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. Income tax preparation software The IRS will not apply these taxes to an exercise before October 23, 2004, of an incentive stock option or an employee stock purchase plan option or to a disposition of stock acquired by such exercise. Income tax preparation software Additionally, federal income tax withholding is not required on the income resulting from a disqualifying disposition 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. Income tax preparation software The IRS will not apply federal income tax withholding upon the disposition of stock acquired by the exercise, before October 23, 2004, of an incentive stock option or an employee stock purchase plan option. Income tax preparation software 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. Income tax preparation software 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. Income tax preparation software ” See Regulations section 1. Income tax preparation software 83-7. Income tax preparation software An employee who transfers his or her interest in nonstatutory 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. Income tax preparation software The former spouse, rather than the employee, is required to include an amount in gross income when the former spouse exercises the stock options. Income tax preparation software See Revenue Ruling 2002-22 and Revenue Ruling 2004-60 for details. Income tax preparation software You can find Revenue Ruling 2002-22 on page 849 of Internal Revenue Bulletin 2002-19 at www. Income tax preparation software irs. Income tax preparation software gov/pub/irs-irbs/irb02-19. Income tax preparation software pdf. Income tax preparation software See Revenue Ruling 2004-60, 2004-24 I. Income tax preparation software R. Income tax preparation software B. Income tax preparation software 1051, available at www. Income tax preparation software irs. Income tax preparation software gov/irb/2004-24_IRB/ar13. Income tax preparation software html. Income tax preparation software For more information about employee stock options, see sections 421, 422, and 423 of the Internal Revenue Code and their related regulations. Income tax preparation software Employer-Provided Cell Phones The value of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a working condition fringe benefit. Income tax preparation software Personal use of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a de minimis fringe benefit. Income tax preparation software For the rules relating to these types of benefits, see De Minimis (Minimal) Benefits , earlier in this section, and Working Condition Benefits , later in this section. Income tax preparation software Noncompensatory business purposes. Income tax preparation software   You provide a cell phone primarily for noncompensatory business purposes if there are substantial business reasons for providing the cell phone. Income tax preparation software Examples of substantial business reasons include the employer's: Need to contact the employee at all times for work-related emergencies, Requirement that the employee be available to speak with clients at times when the employee is away from the office, and Need to speak with clients located in other time zones at times outside the employee's normal workday. Income tax preparation software Cell phones provided to promote goodwill, boost morale, or attract prospective employees. Income tax preparation software   You cannot exclude from an employee's wages the value of a cell phone provided to promote goodwill of an employee, to attract a prospective employee, or as a means of providing additional compensation to an employee. Income tax preparation software Additional information. Income tax preparation software   For additional information on the tax treatment of employer-provided cell phones, see Notice 2011-72, 2011-38 I. Income tax preparation software R. Income tax preparation software B. Income tax preparation software 407, available at  www. Income tax preparation software irs. Income tax preparation software gov/irb/2011-38_IRB/ar07. Income tax preparation software html. Income tax preparation software Group-Term Life Insurance Coverage This exclusion applies to life insurance coverage that meets all the following conditions. Income tax preparation software It provides a general death benefit that is not included in income. Income tax preparation software You provide it to a group of employees. Income tax preparation software See The 10-employee rule , later. Income tax preparation software It provides an amount of insurance to each employee based on a formula that prevents individual selection. Income tax preparation software This formula must use factors such as the employee's age, years of service, pay, or position. Income tax preparation software You provide it under a policy you directly or indirectly carry. Income tax preparation software 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 insurance. Income tax preparation software Determine the cost of the insurance, for this purpose, as explained under Coverage over the limit , later. Income tax preparation software Group-term life insurance does not include the following insurance. Income tax preparation software Insurance that does not provide general death benefits, such as travel insurance or a policy providing only accidental death benefits. Income tax preparation software Life insurance on the life of your employee's spouse or dependent. Income tax preparation software However, you may be able to exclude the cost of this insurance from the employee's wages as a de minimis benefit. Income tax preparation software See De Minimis (Minimal) Benefits , earlier in this section. Income tax preparation software Insurance provided under a policy that provides a permanent benefit (an economic value that extends beyond 1 policy year, such as paid-up or cash surrender value), unless certain requirements are met. Income tax preparation software See Regulations section 1. Income tax preparation software 79-1 for details. Income tax preparation software Employee. Income tax preparation software   For this exclusion, treat the following individuals as employees. Income tax preparation software A current common-law employee. Income tax preparation software A full-time life insurance agent who is a current statutory employee. Income tax preparation software An individual who was formerly your employee under (1) or (2). Income tax preparation software 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 primary direction and control. Income tax preparation software Exception for S corporation shareholders. Income tax preparation software   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Income tax preparation software A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Income tax preparation software 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. Income tax preparation software The 10-employee rule. Income tax preparation software   Generally, life insurance is not group-term life insurance unless you provide it to at least 10 full-time employees at some time during the year. Income tax preparation software   For this rule, count employees who choose not to receive the insurance unless, to receive it, they must contribute to the cost of benefits other than the group-term life insurance. Income tax preparation software For example, count an employee who could receive insurance by paying part of the cost, even if that employee chooses not to receive it. Income tax preparation software However, do not count an employee who must pay part or all of the cost of permanent benefits to get insurance, unless that employee chooses to receive it. Income tax preparation software A permanent benefit is an economic value extending beyond one policy year (for example, a paid-up or cash-surrender value) that is provided under a life insurance policy. Income tax preparation software Exceptions. Income tax preparation software   Even if you do not meet the 10-employee rule, two exceptions allow you to treat insurance as group-term life insurance. Income tax preparation software   Under the first exception, you do not have to meet the 10-employee rule if all the following conditions are met. Income tax preparation software If evidence that the employee is insurable is required, it is limited to a medical questionnaire (completed by the employee) that does not require a physical. Income tax preparation software You provide the insurance to all your full-time employees or, if the insurer requires the evidence mentioned in (1), to all full-time employees who provide evidence the insurer accepts. Income tax preparation software You figure the coverage based on either a uniform percentage of pay or the insurer's coverage brackets that meet certain requirements. Income tax preparation software See Regulations section 1. Income tax preparation software 79-1 for details. Income tax preparation software   Under the second exception, you do not have to meet the 10-employee rule if all the following conditions are met. Income tax preparation software You provide the insurance under a common plan covering your employees and the employees of at least one other employer who is not related to you. Income tax preparation software The insurance is restricted to, but mandatory for, all your employees who belong to, or are represented by, an organization (such as a union) that carries on substantial activities besides obtaining insurance. Income tax preparation software Evidence of whether an employee is insurable does not affect an employee's eligibility for insurance or the amount of insurance that employee gets. Income tax preparation software   To apply either exception, do not consider employees who were denied insurance for any of the following reasons. Income tax preparation software They were 65 or older. Income tax preparation software They customarily work 20 hours or less a week or 5 months or less in a calendar year. Income tax preparation software They have not been employed for the waiting period given in the policy. Income tax preparation software This waiting period cannot be more than 6 months. Income tax preparation software Exclusion from wages. Income tax preparation software   You can generally exclude the cost of up to $50,000 of group-term life insurance from the wages of an insured employee. Income tax preparation software You can exclude the same amount from the employee's wages when figuring social security and Medicare taxes. Income tax preparation software In addition, you do not have to withhold federal income tax or pay FUTA tax on any group-term life insurance you provide to an employee. Income tax preparation software Coverage over the limit. Income tax preparation software   You must include in your employee's wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. Income tax preparation software Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Income tax preparation software Also, show it in box 12 with code “C. Income tax preparation software ” The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax. Income tax preparation software   Figure the monthly cost of the insurance to include in the employee's wages by multiplying the number of thousands of dollars of all insurance coverage over $50,000 (figured to the nearest $100) by the cost shown in Table 2-2. Income tax preparation software For all coverage provided within the calendar year, use the employee's age on the last day of the employee's tax year. Income tax preparation software You must prorate the cost from the table if less than a full month of coverage is involved. Income tax preparation software Table 2-2. Income tax preparation software Cost Per $1,000 of Protection For 1 Month Age Cost Under 25 $ . Income tax preparation software 05 25 through 29 . Income tax preparation software 06 30 through 34 . Income tax preparation software 08 35 through 39 . Income tax preparation software 09 40 through 44 . Income tax preparation software 10 45 through 49 . Income tax preparation software 15 50 through 54 . Income tax preparation software 23 55 through 59 . Income tax preparation software 43 60 through 64 . Income tax preparation software 66 65 through 69 1. Income tax preparation software 27 70 and older 2. Income tax preparation software 06 You figure the total cost to include in the employee's wages by multiplying the monthly cost by the number of full months' coverage at that cost. Income tax preparation software Example. Income tax preparation software Tom's employer provides him with group-term life insurance coverage of $200,000. Income tax preparation software Tom is 45 years old, is not a key employee, and pays $100 per year toward the cost of the insurance. Income tax preparation software Tom's employer must include $170 in his wages. Income tax preparation software The $200,000 of insurance coverage is reduced by $50,000. Income tax preparation software The yearly cost of $150,000 of coverage is $270 ($. Income tax preparation software 15 x 150 x 12), and is reduced by the $100 Tom pays for the insurance. Income tax preparation software The employer includes $170 in boxes 1, 3, and 5 of Tom's Form W-2. Income tax preparation software The employer also enters $170 in box 12 with code “C. Income tax preparation software ” Coverage for dependents. Income tax preparation software   Group-term life insurance coverage paid by the employer for the spouse or dependents of an employee may be excludable from income as a de minimis fringe benefit if the face amount is not more than $2,000. Income tax preparation software If the face amount is greater than $2,000, the entire cost of the dependent coverage must be included in income unless the amount over $2,000 is purchased with employee contributions on an after-tax basis. Income tax preparation software The cost of the insurance is determined by using Table 2-2. Income tax preparation software Former employees. Income tax preparation software   When group-term life insurance over $50,000 is provided to an employee (including retirees) after his or her termination, the employee share of social security and Medicare taxes on that period of coverage is paid by the former employee with his or her tax return and is not collected by the employer. Income tax preparation software You are not required to collect those taxes. Income tax preparation software Use the table above to determine the amount of social security and Medicare taxes owed by the former employee for coverage provided after separation from service. Income tax preparation software Report those uncollected amounts separately in box 12 of Form W-2 using codes “M” and “N. Income tax preparation software ” See the General Instructions for Forms W-2 and W-3 and the Instructions for Form 941. Income tax preparation software Exception for key employees. Income tax preparation software   Generally, if your group-term life insurance plan favors key employees as to participation or benefits, you must include the entire cost of the insurance in your key employees' wages. Income tax preparation software This exception generally does not apply to church plans. Income tax preparation software When figuring social security and Medicare taxes, you must also include the entire cost in the employees' wages. Income tax preparation software Include the cost in boxes 1, 3, and 5 of Form W-2. Income tax preparation software However, you do not have to withhold federal income tax or pay FUTA tax on the cost of any group-term life insurance you provide to an employee. Income tax preparation software   For this purpose, the cost of the insurance is the greater of the following amounts. Income tax preparation software The premiums you pay for the employee's insurance. Income tax preparation software See Regulations section 1. Income tax preparation software 79-4T(Q&A 6) for more information. Income tax preparation software The cost you figure using Table 2-2. Income tax preparation software   For this exclusion, a key employee during 2014 is an employee or former employee who is one of the following individuals. Income tax preparation software See section 416(i) of the Internal Revenue Code for more information. Income tax preparation software An officer having annual pay of more than $170,000. Income tax preparation software An individual who for 2014 was either of the following. Income tax preparation software A 5% owner of your business. Income tax preparation software A 1% owner of your business whose annual pay was more than $150,000. Income tax preparation software   A former employee who was a key employee upon retirement or separation from service is also a key employee. Income tax preparation software   Your plan does not favor key employees as to participation if at least one of the following is true. Income tax preparation software It benefits at least 70% of your employees. Income tax preparation software At least 85% of the participating employees are not key employees. Income tax preparation software It benefits employees who qualify under a set of rules you set up that do not favor key employees. Income tax preparation software   Your plan meets this participation test if it is part of a cafeteria plan (discussed in section 1) and it meets the participation test for those plans. Income tax preparation software   When applying this test, do not consider employees who: Have not completed 3 years of service, Are part-time or seasonal, Are nonresident aliens who receive no U. Income tax preparation software S. Income tax preparation software source earned income from you, or Are not included in the plan but are in a unit of employees covered by a collective bargaining agreement, if the benefits provided under the plan were the subject of good-faith bargaining between you and employee representatives. Income tax preparation software   Your plan does not favor key employees as to benefits if all benefits available to participating key employees are also available to all other participating employees. Income tax preparation software Your plan does not favor key employees just because the amount of insurance you provide to your employees is uniformly related to their pay. Income tax preparation software S corporation shareholders. Income tax preparation software   Because you cannot treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the cost of all group-term life insurance coverage you provide the 2% shareholder in his or her wages. Income tax preparation software When figuring social security and Medicare taxes, you must also include the cost of this coverage in the 2% shareholder's wages. Income tax preparation software Include the cost in boxes 1, 3, and 5 of Form W-2. Income tax preparation software However, you do not have to withhold federal income tax or pay federal unemployment tax on the cost of any group-term life insurance coverage you provide to the 2% shareholder. Income tax preparation software Health Savings Accounts A Health Savings Account (HSA) is an account owned by a qualified individual who is generally your employee or former employee. Income tax preparation software Any contributions that you make to an HSA become the employee's property and cannot be withdrawn by you. Income tax preparation software Contributions to the account are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. Income tax preparation software The medical expenses must not be reimbursable by insurance or other sources and their payment from HSA funds (distribution) will not give rise to a medical expense deduction on the individual's federal income tax return. Income tax preparation software For more information about HSAs, visit the Department of Treasury's website at www. Income tax preparation software treasury. Income tax preparation software gov and enter “HSA” in the search box. Income tax preparation software Eligibility. Income tax preparation software   A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance except for permitted insurance listed under section 223(c)(3) or insurance for accidents, disability, dental care, vision care, or long-term care. Income tax preparation software For calendar year 2014, a qualifying HDHP must have a deductible of at least $1,250 for self-only coverage or $2,500 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $6,350 for self-only coverage and $12,700 for family coverage. Income tax preparation software   There are no income limits that restrict an individual's eligibility to contribute to an HSA nor is there a requirement that the account owner have earned income to make a contribution. Income tax preparation software Exceptions. Income tax preparation software   An individual is not a qualified individual if he or she can be claimed as a dependent on another person's tax return. Income tax preparation software Also, an employee's participation in a health flexible spending arrangement (FSA) or health reimbursement arrangement (HRA) generally disqualifies the individual (and employer) from making contributions to his or her HSA. Income tax preparation software However, an individual may qualify to participate in an HSA if he or she is participating in only a limited-purpose FSA or HRA or a post-deductible FSA. Income tax preparation software For more information, see Other employee health plans in Publication 969. Income tax preparation software Employer contributions. Income tax preparation software   Up to specified dollar limits, cash contributions to the HSA of a qualified individual (determined monthly) are exempt from federal income tax withholding, social security tax, Medicare tax, and FUTA tax. Income tax preparation software For 2014, you can contribute up to $3,300 for self-only coverage or $6,550 for family coverage to a qualified individual's HSA. Income tax preparation software   The contribution amounts listed above are increased by $1,000 for a qualified individual who is age 55 or older at any time during the year. Income tax preparation software For two qualified individuals who are married to each other and who each are age 55 or older at any time during the year, each spouse's contribution limit is increased by $1,000 provided each spouse has a separate HSA. Income tax preparation software No contributions can be made to an individual's HSA after he or she becomes enrolled in Medicare Part A or Part B. Income tax preparation software Nondiscrimination rules. Income tax preparation software    Your contribution amount to an employee's HSA must be comparable for all employees who have comparable coverage during the same period. Income tax preparation software Otherwise, there will be an excise tax equal to 35% of the amount you contributed to all employees' HSAs. Income tax preparation software   For guidance on employer comparable contributions to HSAs under section 4980G in instances where an employee has not established an HSA by December 31 and in instances where an employer accelerates contributions for the calendar year for employees who have incurred qualified medical expenses, see Regulations section 54. Income tax preparation software 4980G-4. Income tax preparation software Exception. Income tax preparation software   The Tax Relief and Health Care Act of 2006 allows employers to make larger HSA contributions for a nonhighly compensated employee than for a highly compensated employee. Income tax preparation software A highly compensated employee for 2014 is an employee who meets either of the following tests. Income tax preparation software The employee was a 5% owner at any time during the year or the preceding year. Income tax preparation software The employee received more than $115,000 in pay for the preceding year. Income tax preparation software 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. Income tax preparation software Partnerships and S corporations. Income tax preparation software   Partners and 2% shareholders of an S corporation are not eligible for salary reduction (pre-tax) contributions to an HSA. Income tax preparation software Employer contributions to the HSA of a bona fide partner or 2% shareholder are treated as distributions or guaranteed payments as determined by the facts and circumstances. Income tax preparation software Cafeteria plans. Income tax preparation software   You may contribute to an employee's HSA using a cafeteria plan and your contributions are not subject to the statutory comparability rules. Income tax preparation software However, cafeteria plan nondiscrimination rules still apply. Income tax preparation software For example, contributions under a cafeteria plan to employee HSAs cannot be greater for higher-paid employees than they are for lower-paid employees. Income tax preparation software Contributions that favor lower-paid employees are not prohibited. Income tax preparation software Reporting requirements. Income tax preparation software   You must report your contributions to an employee's HSA in box 12 of Form W-2 using code “W. Income tax preparation software ” The trustee or custodian of the HSA, generally a bank or insurance company, reports distributions from the HSA using Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA. Income tax preparation software Lodging on Your Business Premises You can exclude the value of lodging you furnish to an employee from the employee's wages if it meets the following tests. Income tax preparation software It is furnished on your business premises. Income tax preparation software It is furnished for your convenience. Income tax preparation software The employee must accept it as a condition of employment. Income tax preparation software Different tests may apply to lodging furnished by educational institutions. Income tax preparation software See section 119(d) of the Internal Revenue Code for details. Income tax preparation software The exclusion does not apply if you allow your employee to choose to receive additional pay instead of lodging. Income tax preparation software On your business premises. Income tax preparation software   For this exclusion, your business premises is generally your employee's place of work. Income tax preparation software For special rules that apply to lodging furnished in a camp located in a foreign country, see section 119(c) of the Internal Revenue Code and its regulations. Income tax preparation software For your convenience. Income tax preparation software   Whether or not you furnish lodging for your convenience as an employer depends on all the facts and circumstances. Income tax preparation software You furnish the lodging to your employee for your convenience if you do this for a substantial business reason other than to provide the employee with additional pay. Income tax preparation software This is true even if a law or an employment contract provides that the lodging is furnished as pay. Income tax preparation software However, a written statement that the lodging is furnished for your convenience is not sufficient. Income tax preparation software Condition of employment. Income tax preparation software   Lodging meets this test if you require your employees to accept the lodging because they need to live on your business premises to be able to properly perform their duties. Income tax preparation software Examples include employees who must be available at all times and employees who could not perform their required duties without being furnished the lodging. Income tax preparation software   It does not matter whether you must furnish the lodging as pay under the terms of an employment contract or a law fixing the terms of employment. Income tax preparation software Example. Income tax preparation software A hospital gives Joan, an employee of the hospital, the choice of living at the hospital free of charge or living elsewhere and receiving a cash allowance in addition to her regular salary. Income tax preparation software If Joan chooses to live at the hospital, the hospital cannot exclude the value of the lodging from her wages because she is not required to live at the hospital to properly perform the duties of her employment. Income tax preparation software S corporation shareholders. Income tax preparation software   For this exclusion, do not treat a 2% shareholder of an S corporation as an employee of the corporation. Income tax preparation software A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Income tax preparation software 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. Income tax preparation software Meals This section discusses the exclusion rules that apply to de minimis meals and meals on your business premises. Income tax preparation software De Minimis Meals You can exclude any occasional meal or meal money you provide to an employee if it has so little value (taking into account how frequently you provide meals to your employees) that accounting for it would be unreasonable or administratively impracticable. Income tax preparation software The exclusion applies, for example, to the following items. Income tax preparation software Coffee, doughnuts, or soft drinks. Income tax preparation software Occasional meals or meal money provided to enable an employee to work overtime. Income tax preparation software However, the exclusion does not apply to meal money figured on the basis of hours worked. Income tax preparation software Occasional parties or picnics for employees and their guests. Income tax preparation software This exclusion also applies to meals you provide at an employer-operated eating facility for employees if the annual revenue from the facility equals or exceeds the direct costs of the facility. Income tax preparation software For this purpose, your revenue from providing a meal is considered equal to the facility's direct operating costs to provide that meal if its value can be excluded from an employee's wages as explained under Meals on Your Business Premises , later. Income tax preparation software If food or beverages you furnish to employees qualify as a de minimis benefit, you can deduct their full cost. Income tax preparation software The 50% limit on deductions for the cost of meals does not apply. Income tax preparation software The deduction limit on meals is discussed in chapter 2 of Publication 535. Income tax preparation software Employee. Income tax preparation software   For this exclusion, treat any recipient of a de minimis meal as