Taxable and Nontaxable Fringe Benefits
Procedure Number: 5.5.14-P
Current Effective Date: 07/01/2019
Original Effective Date: 05/01/2012
Revision Dates: 05/1/2012, 01/01/2014, 05/30/2017, 07/01/2019
Revision Number: 4
Responsible Official: Director of Payroll
To address compliance requirements for employee fringe benefits per Internal Revenue Service (IRS) regulations.
This procedure applies to all KCTCS employees.
Employee fringe benefits are assumed income for an employee, unless specifically excluded within IRS code.
The IRS has determined taxes are to be withheld on items and/or services given to employees outside of the base benefit package, even when the employer did not purchase the item or service, but distributes it with the intent of benefiting the employee.
The college president or designee, and/or, respective KCTCS President’s cabinet member or designee shall approve the purchase and/or distribution of items and/or services to employees.
- Delegation of authority by the college president or KCTCS President’s cabinet member to his/her designee shall be in writing and retained for purposes of audit documentation.
4. De Minimis Fringe
The IRS has determined that some benefits can be de minimis in nature. To be a de minimis fringe benefit, the benefit shall be:
- Non-cash, provided infrequently, and be of nominal value.
- Administratively difficult to account for in value and procedurally.
The IRS has not defined a specific monetary amount as being de minimis. The term de minimis used here meaning something that is so small or insignificant, to be considered of non-importance. KCTCS has defined de minimis as fifty dollars ($50).
In order for work clothes and uniforms provided by KCTCS to be nontaxable, they shall meet one of the following accountable plan rules:
- Be a condition of employment, not adaptable to general usage as ordinary clothing, not worn for general usage, and/or be for a specific job related duty where safety and protection is of concern.
Protective Clothing (Safety)
- Protective clothing should follow the US Office of Safety and Health Administration (OSHA) Code of Federal Regulations (CFR) (29 CFR 1910.132.d) with the employer assessing the hazards of the workplace.
- In such an instance where protective clothing is purchased, the supervisor shall identify and justify the specific items of clothing that are required for the safety of the employee in performing the job. It is not enough that the clothing is distinctive in nature and low cost; it shall serve as a matter of employee protection and safety under OSHA rules to qualify as exempt from taxation.
- Clothing may not be provided as a basic living requirement and shall be related to the specific employment functions and duties of the job.
- KCTCS has determined public protection, security/maintenance and operations/environmental
services personnel may be provided uniforms as a nontaxable fringe benefit.
- Uniforms and logoed apparel shall have a requirement to be worn soley on the job and provide a professional and visual image recognition for the personnel performing their assignments. In such an instance, the clothing should help provide safety and recognition for the employee, students, faculty, and staff while on duty; and serve as a link to security on campus.
- Uniforms should include the employee’s name, department, and college logo
6. Prizes and Giveaways
Prizes and giveaways are generally taxable and are included in the employee’s income unless they are de minimis in nature. (See Section 4)
7. Tuition and Course Related Items
Tuition paid for an employee outside of the established KCTCS benefit program, and not covered under Internal Revenue Code (IRC) 127, is a taxable benefit to the employee.
Book, fees, and other related course items are not covered under IRC 127 and, if compensated, are a taxable benefit to the employee.