TAX WITHHOLDING AND REPORTING - FRINGE BENEFITS AND EMPLOYEE BUSINESS EXPENSES - 8572

Employment taxes (federal and state income, Social Security, and Medicare) apply to various employer payments, fringe benefits (FB), and employee business expense (EBE) reimbursements.

Fringe Benefits

Fringe benefits are generally cash, goods, property, or services received from the employer in addition to an employee’s regular pay. Fringe benefits are reportable and taxable income unless expressly excluded by federal and state tax laws, rules, regulations, etc.

Employee Business Expense (EBE) Reimbursements

Employer reimbursements for EBEs (e.g., moving expenses, long term travel expenses, personal use of state-provided vehicles, uniform allowances, etc.) are taxable and reportable income when the sponsoring employer’s expense reimbursement arrangement does not satisfy all of the Internal Revenue Services (IRS) Accountable Plan provisions and any unique requirements applicable per federal and state tax laws, rules, regulations, etc.

Accountable Plan Provisions

• Expenses must be job-related–the expenses would be deductible on an employee’s personal income tax return.
• The employee must provide, and the sponsoring employer must validate a detailed accounting of the expenses (including time, business purpose, place, and amount supported by receipts).
• Excess payments must be promptly returned to the employer.

Employee business expenses must satisfy other specific requirements. For example, uniforms must satisfy federal and state definitions of what constitutes a uniform as well as be provided under an accountable plan before reimbursements qualify as non-taxable.

Employee business expenses reimbursements failing to meet either an accountable plan or other mandated requirements are considered a non-accountable plan and are reportable and taxable income.

Tax Withholding

Taxation is based upon the actual reimbursement amount. For non-cash benefits such as personal use of a state-provided vehicle, the fair market value is generally used to determine the tax liabilities.

The State Controller’s Office (SCO) processes applicable tax withholding as follows:

See Payroll Procedures Manual (PPM) section N171.

Taxes are due (payable) and reportable upon constructive receipt of the EBE reimbursement or the FB by the employee. Employers must report taxable EBE reimbursement and FBs monthly to the SCO no later than the 10^th of the month following the month of receipt. Applicable taxes are withheld from the affected employee’s next regular payroll warrant. For example, taxable overtime meal reimbursements/value of overtime meals received by the employee in March must be reported to the SCO by April 10. Failure to report timely violates legal requirements and subjects agency/department (including third parties such as an employee’s supervisor) to civil and criminal actions.

The following EBE reimbursements and FBs have taxable/reportable requirements that mandate timely employer reporting, as outlined in the PPM section N.

Taxable employer payments include but are not limited to the following:

• Personal use of state-provided vehicles and aircraft
• Awards, bonuses, incentives
• Bicycle and car mileage
• Entertainment expenses
• Educational assistance, scholarships
• Electronic devices
• Housing
• Life insurance
• Loan programs
• Long term travel
• Meals (travel and non-travel status), per diems, lodging
• Moving or mileage expenses
• Outplacement
• Dues and memberships
• Tickets, tips, gratuities
• Tool and uniform allowances