Tax Book page 13-7 Employee clarification

[hammercpa]

Hello,
The chart in the deluxe edition on page 13-7 is about individuals who are employees for fringe benefit purposes. I'm concerned with meals and lodging column. Since there is no "X" mark in that column does that mean that none of the individuals who are identified on the left side have to include this benefit in income?

I have an LLC that is in a rural area and provides workers (that are not employees) meals and housing during their short construction projects. I'm trying to determine if they are subject to the fringe benefit rules, hence receive taxable income if they don't meet the exceptions.

Thanks for any help.

Dave

[Lion]

Employer's Convenience

Sounds like it's for the convenience of the employer to get them out to a rural area and not taxable compensation to employees.

[Bees Knees]

The chart on page 13-7 says:

“Who Qualifies as Employees?”

Per IRS Pub 15-B, the following chart identifies individuals other than common-law employees of the employer and their dependents that are treated as employees for fringe benefit purposes.

Thus, in addition to common-law employees, those with an X are also treated as employees for fringe benefit purposes. If there is no X under meals and lodging, then ONLY common-law employees of the employer are treated as employees for fringe benefit purposes.

Thus, if you are not treated as an employee, any reimbursement for meals and lodging would have to be included in income, unless some other provision of the tax code applies that allows you to exclude the reimbursement from income.

For example, since a self employed individual can use the per diem standard meal allowance method to deduct his or her own meals, then any reimbursement at or below the federal per diem rate by a person who hired the self employed individual can be excluded from income under the accountable plan rules. However, a self employed individual cannot use the per diem rate method to deduct his or her own lodging. The self employed individual must use actual receipts to take such a deduction. Thus, if the self employed individual were to be reimbursed by the person who hired him or her using the federal per diem rate for lodging, the self employed individual would have to include the reimbursement in income, and take a deduction for actual expenses paid. That rule would not apply if the individual was treated as an employee for fringe benefit purposes.

[Bees Knees]

I have an LLC that is in a rural area and provides workers (that are not employees) meals and housing during their short construction projects. I'm trying to determine if they are subject to the fringe benefit rules, hence receive taxable income if they don't meet the exceptions.

Thus, since independent contractors are not treated as employees for purposes of the meals and lodging fringe benefit rules, the value of the lodging must be included in income (the meals may be excluded under the accountable plan rules if they are being reimbursed at the federal per diem rate). The individual workers, however, would be allowed to deduct any actual costs incurred for lodging. However, since it sounds like their housing is provided free, there would be no deduction for that.

The convenience of employer rules only apply when the worker is treated as an employee.

[hammercpa]

Thank you for your and taking the time to explain the chart to me in a very sound and logical way. I was mis-reading it.

Dave