|Tax Withholding and Reporting
As required by federal law, the University must report taxable fringe benefits for
employees as taxable wages on IRS Form W-2. Most taxable fringe benefits are subject
to federal and state income tax withholding, as well as social security and Medicare
taxes. The University may spread tax withholding on fringe benefits over multiple
pay periods during the tax year, depending on when a department submits the reportable
benefits. Benefits provided in the last two (2) months of the year may have taxation
carried into the following year.
Taxable fringe benefits for non-employees are not subject to tax withholding, but
may be reportable on IRS Form 1099-MISC.
- Non-Taxable Fringe Benefits:
- The IRS defines no-additional cost services as any service provided for use by an
employee if the service is primarily for sale to students and third parties and the
University incurs no substantial additional cost in providing the service to an employee.
Examples are recreational facility use and tickets to events that have not sold out.
- Working condition fringe benefits are any property or service provided to an employee
that if the employee had paid, the payment would be deductible as a business expense.
To be excludable as a working condition fringe benefit, all of the following must
- the benefit must relate to the employer’s business;
- the employee would have been entitled to an income tax deduction if expense had been
paid personally; and
- the business use must be substantiated with records.
Examples are business use of the following: wireless communication devices, University
provided automobiles, airplanes and chartered flights, club memberships, professional
dues, publications and meetings. With the exception of University provided wireless
communication devices, the IRS deems that any personal use of these items is taxable
- De minimis fringe benefits include any property or service provided to an employee
infrequently and has a value so small that accounting for it is unreasonable and administratively
impractical. Examples include occasional theater or sporting event tickets, group
meals or picnics, awards and gifts.
- A qualified employee discount allows an employee to obtain property or services from
the University at a price below that charged to the public. Generally, a qualified
employee discount cannot exceed 20%. Otherwise, it may be taxable.
- Lodging and meals provided to an employee may be non-taxable under certain circumstances.
To qualify as non-taxable, the benefits must be in-kind (cash allowances do not qualify),
provided for the University’s convenience and on the University’s business premises.
University-provided lodging must be required as a condition of employment for the
employee to fulfill the duties of his/her employment.
- Lodging must meet the following requirements to be considered non-taxable:
- The University provides the lodging for its convenience. The lodging must have a direct
nexus between the lodging furnished and the business interests of the employer.
- The University provides the lodging as a condition of employment. The employee must
accept the lodging to perform the duties of employment, and he or she cannot have
an option to accept cash in lieu of the lodging.
- The University provides the lodging on its business premises. The IRS defines the
business premises as the place of employment.
- Meals must meet the following requirements to be considered non-taxable:
- Provided to an employee, or employee’s spouse or tax dependent;
- Provided by or on behalf of the employer;
- Provided on the business premises of the employer; and
- Provided for the convenience of the employer.
- The University may consider certain uniform expenses and allowances as working-condition
fringe benefits. The acquisition and maintenance of employee uniforms are tax-deductible
or tax-exempt as ordinary and necessary business expenses if the uniforms are: (1)
specifically required as a condition of employment and (2) of a distinctive nature
and not of a type that is adaptable to general or continued usage as ordinary clothing.
Non-taxable clothing also includes protective clothing. Protective clothing should
follow the U.S. Office of Safety and Health Administration (OSHA) Code of Federal
Regulations (CFR) with the employer assessing the hazards of the workplace. In such
an instance where the University purchases protective clothing, the supervisor shall
identify and justify the specific items of clothing that are required for the safety
of the employee in performing the job. The clothing must serve as a matter of employee
protection and safety under OSHA rules to qualify as exempt from taxation.
The University will consider clothing purchases costing $100 or less per employee,
per calendar year as a de minimis fringe benefit and will thus be non-taxable to the
Apparel allowances, or the value of merchandise credit provided to certain employees
that allows them to acquire apparel and goods directly from an outside vendor, is
a taxable fringe benefit.
If any questions arise regarding the exclusion (or inclusion) of clothing in an employee’s
taxable wages, please contact the Payroll Office in Finance and Administration for
a final determination.
- Educational tuition assistance (both undergraduate and graduate level) provided to
employees is often nontaxable, subject to certain parameters. If a department provides
an employee with assistance exceeding $5,250.00, the University must include the value
of these benefits as wages, unless the benefits are working condition benefits. The
University may exclude this working condition benefit from wages.
- Reimbursement to an employee for meals and entertainment generally will not be included
in an employee’s income provided there is a business purpose for such expenses. The
employee is required to timely substantiate the reimbursed expenses and return within
a reasonable period of time any amounts reimbursed which exceed the amount of substantiated
expenses. Expenses must be ordinary and necessary and incurred in the regular course
of business, and the activities should relate to, or be in association with, the active
course of business.
- Travel advances paid to employees must be accounted for within 180 days after the
trip ends, or the advance is considered taxable income to the employee. Accounting
for the advance includes completing a Claim for Travel Expenses form with an itemization
of travel expenses, providing required receipts and supporting documentation for travel
expenses, and returning any portion of the advance that is greater than the allowable
out-of-pocket travel expenses.
- The University treats cell phone allowances as non-taxable compensation and processes
them through payroll. The IRS does not deem reasonable allowances as taxable compensation.
Employees who receive a cell phone allowance must subscribe directly with cellular
service providers and pay the providers directly. The cellular phone allowance is
for professionals who are on-call or frequently work outside of normal office locations,
and who need cellular access to fulfill their job duties. The stipend is also for
critical decision-makers who must perform their duties during crises. The stipend
is not for convenience or casual use. The cell phone allowance should cover the cost
of an individual’s basic phone and data plan for business needs.
- Employer reimbursements to employees for the cost of their professional licenses/certificates
and professional organization dues may be excludable if they are directly related
to the employee's job. Once an employee has completed the education or experience
required for a professional license, the IRS deems the expenses needed to maintain
a license or status as ordinary and necessary business expenses and therefore are
not taxable to the employee, when paid directly or reimbursed by the University subject
to substantiation requirements (i.e., receipts). When the University directly pays
or an employee receives a reimbursement, the fees are a working condition fringe benefit.
The expense, however, cannot qualify the employee for a new trade or business or assist
them in meeting the minimum qualifications for their current job.
- Any payments made by the University for professional dues, publications used by employees
in their work activities, or attendance at professional/training meetings are excludable
to the employee as working condition fringe benefits.
- Taxable Fringe Benefits:
- Cash fringe benefits, such as gift cards and gift certificates, are generally always
- Apparel allowance. Per IRS code regulations, the value of employer-provided apparel
(including items donated by outside parties, such as vendors or other donors) is taxable
to an employee unless both of the following two (2) conditions are met:
- The employee must wear the clothing as a condition of employment; and
- The clothing is not suitable for everyday wear.
The IRS deems all clothing as a taxable fringe benefit to an employee unless it meets
the above two conditions. The value of a merchandise credit provided to certain employees
that allows them to acquire apparel and goods directly from an outside vendor is taxable.
- The value of an employee’s personal use of an automobile provided by the University
must be included in the employee’s income. A University-provided automobile is one
which is owned or leased by the University, or owned or leased by a third party and
made available for an employee’s use, or owned or leased by the employee and for which
the University is responsible for payments to purchase or lease the automobile.
Each employee who receives a vehicle must document all business and total miles driven.
The documentation must include the date and business mileage of each business trip.
All business mileage must be supported by written records (e.g., logs, calendars,
or other means) reflecting the date, place, and nature of business. The University
will maintain the documents for five (5) years from the year in which it reports the
personal mileage on the employee’s W-2.
The annual lease valuation rule values the personal use based on the cost of the vehicle
or its fair market value (Blue Book or equivalent) on the first day it is available
for personal use. The University will revalue the fair market value of the vehicle
as of January 1 after each full four (4)-year period. The University will derive the
annual lease value for the vehicle by comparing the vehicle’s fair market value to
an IRS table. The lease value from the IRS table is multiplied by the total personal
use percentage (total personal miles divided by total miles driven) to determine the
taxable vehicle income.
- The value of University-paid club memberships and related expenditures are taxable
to the extent such activities do not serve a bona-fide University business purpose.
The University will divide club memberships into those for business, pleasure, recreation,
or other social purpose, to include country clubs, golf and athletic clubs, airline
clubs, hotel clubs, and clubs operated to provide meals under circumstances generally
considered to be conducive to business discussion.
Those clubs not included in this definition are business leagues, trade associations,
chambers of commerce, boards of trade, real estate boards, professional organizations,
and civic or public service organizations, unless a principal purpose of the organization
is to conduct entertainment activities for members or guests or to provide members
or guests with access to entertainment facilities. Such payments made for business
or trade purposes are still excludable from the employee's gross income as a working
condition fringe benefit, as the employee is not prohibited from deducting such expenses
Employees must substantiate the percentage of club dues used for a valid business
purpose with the time and place of the use, the amount of the dues, the business purpose
of the use, and the name and business relationship of the person who was met or entertained.
Any personal use by the employee of the club membership will be included in the employee's
- The market value of lodging provided by the University that does not meet the tests
for exclusion as identified above.
- The value of tickets/passes to events for which there is no bona-fide business purpose
or the no-additional cost service exclusion does not apply.
- The value of University-paid travel and meals for the spouse of a University employee
when the spouse’s attendance serves no documented official University business purpose
(if spouse’s attendance is primarily social in nature, this does not qualify as a
bona-fide business purpose). However, when the aircraft is a University-provided plane
(University owned or chartered), and 50% or more of the regular passenger seating
capacity of the plane is filled with employees flying for substantiated business reasons,
the value of the flight will not be included in the income of those employees who
are flying for personal reasons. This also applies to spouses and dependent children,
surviving spouses, and retired employees.
- The University provides certain APSU employees with a monthly non-accountable expense
allowance (i.e., cell phone allowance). Per IRS Code, amounts treated as paid under
a non-accountable plan are included in the employee's gross income, reported as wages
or other compensation on the employee's Form W-2, and are subject to withholding and
payment of employment taxes.
- In some cases, the University permits certain employees to use facilities at a cost
that is less than the fair market value (FMV) rental cost of the facility to the public.
Employee discounts on rental of real property does not qualify as a fringe benefit
exclusion. When an employee rents a facility at less than FMV, the difference between
the cost the employee pays and the FMV rental price of the facility will be included
in taxable income and reported on the Form W-2.
- The value of University-paid tuition credits taken by an employee enrolled in a graduate
degree program, where the total tuition benefit exceeds $5,250.00 in a calendar year
and does not qualify as job-related education. Exception: Graduate education benefit
provided to graduate students who are performing research or teaching for the University
is not subject to tax. If the University requires courses to maintain or improve skills
for a current job or requires the education to keep a present salary, status, or job,
the graduate tuition waiver will not be taxable. To document this, the employee is
required to complete the Employee Fee Waiver Form.
- Generally, if a third party pays or provides a fringe benefit to a University employee
in connection with the employee’s performance of services for the University, the
payment is considered taxable income to the employee. University imposed withholding
and reporting requirement occurs when the benefit is part of the employee’s employment
contract, contemplated during the employment process, or provided by a third party
via agreement with the University. Where a third party provides a benefit to a University
employee on its own and without University approval, the taxable value of this fringe
benefit is not considered taxable wages reportable by the University on the employee’s
W-2. The employee should be aware that there still may be income tax consequences
from such an arrangement; however, in this case, the University has no withholding
or reporting obligations with regard to the benefit.