Late last year, while you were probably busy picking out which bubbly to pop at the stroke of midnight, the IRS gave us another reason to celebrate. You may remember (as we wrote previously) the IRS said it would not require identity theft victims to include the value of identity theft restoration and protection services in their income. But what about for employers or others who provide ID theft in advance of a breach?
Well, after receiving a total of only four comments, the IRS decided to broaden the nontaxability of ID theft protection services. In providing this relief, the IRS cited comments indicating that organizations are increasingly providing ID protection services before a data breach occurs as a strategy to help with early detection of a breach and to minimize the impact on operations.
Specifically, the IRS said, in Announcement 2016-02 that it will not require individuals to include in their taxable income the value of ID protection services provided by their employers (or other organization to whom they provide personal information) before a data breach occurs. It will also not assert violations if employers or other companies fail to report the amounts on Forms W-2 or Form 1099-MISC, for example. This relief still does not apply to cash in lieu of these services or proceeds received under an ID theft policy.
Interestingly, the IRS is not saying that ID theft protection services are nontaxable. They are simply saying that they will not assert violations of the tax code for failure to include their value in taxable income or report it. For most purposes, this distinction does not mean much. However, this new guidance does not mean, for example, that employers who ask employees to pay for a portion of the ID theft services can have employees pay on a pre-tax basis through a cafeteria plan because ID theft is not a permitted benefit under a Section 125 cafeteria plan.
The IRS has issued some favorable guidance on the tax treatment of identity protection services provided to data breach victims. In Announcement 2015-22, the IRS indicated that when an organization experiences a data breach, and it provides identity protection services to individuals whose information may have been compromised, the IRS will not assert that the individual must include the value of the services in gross income. In addition, the IRS says that when an employer provides such services as a result of a data breach involving the recordkeeping systems of the employer, or the employer’s agent or service provider, the employer will not be required to include the value of the services in the employee’s gross income and wages. The Announcement also indicates that the IRS will not assert that these amounts need to be reported on an information return (such W-2 or 1099-Misc.).
According to the Announcement, the “identity protection services” to which this guidance applies include credit reporting and monitoring services, identity theft insurance policies, identity restoration services and other similar services, but only when provided in connection with a data breach that occurs as a result of “hacking” or otherwise. The tax relief provided by this guidance does not apply where an employer provides these services to its employees as part of its regular compensation and benefits package. Nor does it apply to cash received in lieu of identity protection services. Also, although the value of an identity theft insurance policy is included in the relief, it does not apply to the proceeds received under an identity theft insurance policy. The tax treatment of such amounts is determined under existing tax laws applicable to insurance recoveries.
The Announcement concludes with a request for comments on whether organizations commonly provide identity protection services in situations other than as a result of a data breach and whether additional guidance would be helpful in clarifying the tax treatment of the services provided in those situations. The deadline for providing comments to the IRS is October 13, 2015.
As you may recall from our earlier post, the 6th Circuit held in U.S. v. Quality Stores, that severance payments made to employees in connection with an involuntary reduction in force were not “wages” subject to FICA taxes. This decision was contrary to published IRS guidance and created a split in the courts. In October of last year, the United States Supreme Court agreed to review the case and on January 14th, it heard oral arguments. The Supreme Court is expected to issue a ruling by the end of June.
Taxpayers may be entitled to a FICA tax refund if the decision is upheld by the Supreme Court on appeal. In order to preserve the right to a refund, taxpayers must file a protective claim before the applicable statute of limitations runs. As we previously reported in a post last year, the deadline to file a protective order for severance payments made in 2009 was April 15, 2013. At this time, the deadline to file a protective claim for 2010 severance payments is quickly approaching on April 15, 2014. We encourage any employer who made involuntary severance payments in 2010 to consider filing a protective claim now on Form 941-x in order to preserve the right to a refund if the 6th Circuit decision is upheld.
So we know you’re probably tired of hearing about the fiscal cliff. We know this because we are sure many of you nominated “fiscal cliff” as one of the “words” that should be banished from the English language in 2013. However, there are some benefits provisions in the generally Orwellian-named American Taxpayer Relief Act. Fortunately, they were not the ones we were worried might be included, and in fact, some of them actually provide some tax relief.
- First, there’s the Roth conversion opportunity we covered previously.
- Educational assistance tax benefits, which previously had to be extended each year, are now “permanent” (as that term is generally used in tax law).
- The same is true for adoption assistance.
- The tax exclusion for transit benefits is now permanently on par with commuter parking (previously, the tax exclusion for transit benefits was lower than for commuter parking).
- The CLASS Act (the voluntary long-term care program that was part of health reform) was finally repealed. Those who follow benefits news may recall that HHS declined to implement it once the program was determined to be financially unsustainable.
- Any remaining funding for CO-OPs (which are essentially non-profit insurers that were supposed to compete with for-profit insurers under health reform) has been eliminated. Only about half of the funding for CO-OPs had been used, and that will remain outstanding, but the rest has been clawed back.
So thanks to the fiscal cliff, you can educate your workforce, help them build a family, encourage them to take mass transit, and let them convert their 401(k) savings to Roth! Helpful? Yes. But unlikely to save “fiscal cliff” from the English-language chopping block, particularly when combined with the substantial additional tax burdens imposed by the “Relief” Act.
Washington Post – Fiscal Cliff Bill Cuts $1.9 Billion from Obamacare
Summary of Other Bryan Cave Blog Posts Covering Different Angles of the Fiscal Cliff
Now that we’ve returned from Thanksgiving and have finished off the leftover pumpkin pie, we wanted to share a few more recent benefits-related(ish) stories and other links.
- The most recent issue of the IRS Employee Plans News is out, including information on an upcoming IRS phone forum on Hurricane Sandy relief.
- In case you didn’t see it, last week the DOL issued compliance guidance for employee benefit plans in wake of Hurricane Sandy.
- This blog post lists four ways to internally market your benefits and compensation programs.
- One way you might help participation in your wellness programs is develop an app, says this article.
- Are you having trouble keeping track of all the lawsuits about the PPACA contraceptive mandate? Fortunately for you, Politico has a good summary.
- Some other countries provide some interesting benefits, as detailed in this article. Which ones would you like to see replicated in the US?
Everybody knows that everybody likes sports. According to the Sports Business Journal, employers are parleying their ties to sports teams, leagues and events into employee benefits. Internal marketing of a company’s sports sponsorship can boost morale, provide perquisites, enhance recruiting and publicize corporate philanthropy
For example, according to the Sports Business Journal, Discover Financial Services, an official sponsor of the National Hockey League, was able to display the Stanley Cup in its suburban Chicago headquarters for a half-day after the Blackhawks won the Stanley Cup in 2010. Workers were welcome to pay a visit to have a look and even have their pictures taken with the trophy. This year, the Cup was displayed in Discover’s New Castle, Del. office as a reward for winning an internal call center contest.
Other examples include pre-game hospitality sessions, free or discounted game tickets and discounted team merchandise, either as special rewards for exemplary performance or for general availability to employees.
OMG! Can you inadvertently create a taxable fringe benefit under the Internal Revenue Code or an employee welfare benefit plan subject to ERISA’s reporting and disclosure requirements by providing these sports perks to employees? On the tax question, occasional parties and occasional tickets to sporting events are generally treated as non-taxable de minimis fringe benefits under section 132 of the Code. On the ERISA question, there is no direct guidance in the governing regulations; however holiday gifts such as turkeys or hams are not included in the definition and it appears that the smaller and more occasional the employee reward, the less likely that the Department of Labor will assert that it constitutes an employee benefit plan subject to ERISA. Likewise, the sky is not the limit. If the perks are given too often or the value is too high (think season tickets or Oprah’s iPad giveaway), they will not qualify as de minimis fringe benefits, they will be subject to income and payroll taxes, they may constitute an ERISA employee benefits plan, and they may make the company look silly to employees.
Please share your thoughts and experience on this subject.
On Tuesday, the IRS released additional interim guidance on the health reform requirement to include the cost of health coverage on an employee’s Form W-2. Employers are permitted, but not required, to report these amounts on 2011 W-2s issued by the end of this month, but reporting will be required for 2012 W-2s issued in January 2013.
Of particular interest in the guidance is the following Q&A:
Q-32: Is the cost of coverage provided under an employee assistance program (EAP), wellness program, or on-site medical clinic required to be included in the aggregate reportable cost reported on Form W-2?
A-32: Coverage provided under an EAP, wellness program, or on-site medical clinic is only includible in the aggregate reportable cost to the extent that the coverage is provided under a program that is a group health plan for purposes of § 5000(b)(1). An employer is not required to include the cost of coverage provided under an EAP, wellness program, or on-site medical clinic that otherwise would be required to be included in the aggregate reportable cost reported on Form W-2 because it constitutes applicable employer-sponsored coverage, if that employer does not charge a premium with respect to that type of coverage provided to a beneficiary qualifying for coverage in accordance with any applicable federal continuation coverage requirements. If an employer charges a premium with respect to that type of coverage provided to a beneficiary qualifying for coverage in accordance with any applicable federal continuation coverage requirements, that employer is required to include the cost of that type of coverage provided….For this purpose, federal continuation coverage requirements include the COBRA requirements under the Code, the Employee Retirement Income Security Act of 1974, or the Public Health Service Act and the temporary continuation coverage requirement under the Federal Employees Health Benefits Program.
There are several subtleties subsumed in this piece of guidance. (more…)
With the issuance of Notice 2011-72, the Internal Revenue Service finally addressed the uncertainty relating to the tax treatment of employer-provided cell phones (or other similar telecommunications equipment) and of the personal use of an employer-provided cell phone by the employee.
Historically, cell phones provided by an employer to its employees for business use were deductible to the employer and excludable from the employee’s income as a “working condition fringe benefit”, subject to stringent recordkeeping requirements. However, the Small Business Jobs Act of 2010 removed the cell phones from the definition of listed property for tax years beginning after December 31, 2009. As a result, employers could arguably exclude the value of certain employer-provided cell phones from employee wages without complying with the substantiation requirements applicable to other employer provided property.
This new guidance offers good news for employers. Pursuant to Notice 2011-72, an employee’s use of an employer-provided cell phone for reasons related to the employer’s trade or business will be treated as a working condition fringe benefit and excludable from the employee’s income if the cell phone is issued primarily for business reasons. A cell phone is considered to be issued primarily for business purposes if there are substantial reasons relating to the employer’s business for providing the employee with a cell phone (other than to provide compensation to the employee). But perhaps the best news for employers is that any substantiation requirements that would otherwise be needed to take a deduction will be deemed to be satisfied. The Notice also clarified that the value of any personal use by the employee of the employer-provided cell phone will be excludable from the employee’s gross income as a “de minimis fringe benefit”.
Simultaneous with the issuance of Notice 2011-72, the SB/SE Director of Examination issued an IRS Memorandum to all field examiners, dated September 14, 2011, providing interim audit guidance on employer reimbursement to employees for expenses relating to use of their personal cell phones for business purposes. Where employers, for substantial business reasons, require employees to maintain and use their personal cell phones for business purposes, reimbursement by the employer of employees’ cell phone expenses will not result in wages to the employees. However, the employees must maintain the type of cell phone coverage that is reasonably related to the needs of the employer’s business, and the reimbursement must be reasonably calculated so as not to exceed expenses the employees actually incurred in maintaining the cell phone. Additionally, the reimbursement for business use of the employee’s personal cell phone cannot be a substitute for a portion of the employee’s regular wages.
Examples of substantial noncompensatory business reasons for requiring employees to maintain personal cell phones and reimbursing them for their use include: (1) the employer’s need to contact the employee at all times for work-related emergencies; and the (2) the employer’s requirement that the employee be available to speak with clients at times when the employee is away form the office or at times outside the employee’s normal work schedule.
Notice 2011-72 is applicable to any use of an employer-provided cell phone occurring after December 31, 2009.