Fringe Benefit Question

[peggysioux]

If closed-held C-Corp provides long-term care benefits to officers and one other employee, but excludes the only other employee in company (the excluded one employee is under age 25 and has not been with company for three years), should the amount of benefits be added to W-2? In the regs it states if caferteria or self-insured plans, amounts would be added to W-2; however, company has neither. They just pay 100% of premiums. But, I know that the officers fall under the highly compensated employee due to owning more than 10% of stock.

[JG EA]

If closed-held C-Corp provides long-term care benefits to officers and one other employee, but excludes the only other employee in company (the excluded one employee is under age 25 and has not been with company for three years), should the amount of benefits be added to W-2? In the regs it states if caferteria or self-insured plans, amounts would be added to W-2; however, company has neither. They just pay 100% of premiums. But, I know that the officers fall under the highly compensated employee due to owning more than 10% of stock.

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From Pub 15B It sounds like you've already read this, but...

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. Section 2 discusses the exclusions that apply to certain fringe benefits. Any benefit not excluded under the rules discussed in section 2 is taxable. .

Plans that favor highly compensated employees. 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. A plan you maintain under a collective bargaining agreement does not favor highly compensated employees.

A highly compensated employee for this purpose is any of the following employees.
An officer.

A shareholder who owns more than 5% of the voting power or value of all classes of the employer's stock.

An employee who is highly compensated based on the facts and circumstances.

A spouse or dependent of a person described in (1), (2), or (3).


Plans that favor key employees. If your plan favors key employees, you must include in their wages the value of taxable benefits they could have selected. 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. However, a plan you maintain under a collective bargaining agreement does not favor key employees.

A key employee during 2010 is generally an employee who is either of the following.
An officer having annual pay of more than $160,000.

An employee who for 2010 was either of the following.

A 5% owner of your business.

A 1% owner of your business whose annual pay was more than $150,000.


More information. For more information about cafeteria plans, see section 125 of the Internal Revenue Code and its regulations.