forms and policies

Other Fringe Benefits Policy

IRS Code Section 132 , Certain Fringe Benefits provides an exclusion from taxation for fringe benefits that are provided as a:

  1. no-additional cost service;
  2. qualified employee discount;
  3. working condition fringe; or
  4. de-minimis fringe.
Code Section 132(j) limits the benefits of Code Section 132 by stating that to the extent that the fringe benefit is of a type the tax treatment of which is covered by other code sections, Code Section 132 will not apply. Code Section 127 covers educational assistance and this limits the applicability of Code Section 132.

IRC Section 132(h)(9) further states that it will apply to educational expenses not covered by Section 127 only to the extent such amounts are considered a working condition fringe benefit. A "working condition fringe benefit" is described as any property or service provided to the employee of an employer to the extent that, if the employee paid for the property or service, the amount paid would be allowed as a deduction under Code Section 162 or 167.

The 89 Revenue Reconciliation Act specifically states that to the extent education is job related, as defined under Section 162, it may be excluded from taxation. This means graduate or undergraduate level courses and courses that exceed the $5,250 limitation amounts would not be taxable to the recipient to the extent it met the rules of 1.162-5.

Aliens are people who are not U.S. citizens and can be classified as resident or nonresident .

Tax Structure for Aliens

  1. Resident aliens are taxed on their worldwide income, same as U.S. citizens.
  2. Nonresident aliens generally are taxed only on their income from sources within the United States. However, special rules apply to taxing their income. Investment income is taxed at 30% of gross income, unless an income tax treaty provides for a lower tax rate. Business income is taxed on a net basis at the graduated rates that apply to U.S. citizens or residents. There are different rules for documenting, withholding and reporting employees, independent personal services, university alien employees, and scholarships, fellowships and grants.
The following exhibits are presented to assist you in accounting for payments made to aliens. First, you must determine whether the payment is being made to a resident alien or nonresident alien (Exhibit 1). Once that determination is made, you will need to refer to the exhibit that is applicable to the payee, depending on whether the payee is an employee, independent contractor, university employee, or the payment is for a scholarship, fellowship or grant (Exhibits 2 thru 5). Exhibit 6 is a summary of the tax reporting rules that were outlined in Exhibits 2 thru 5. The tax rates applicable to aliens are outlined in Exhibit 7. Exhibit 8 is a summary of the tax deposit rules for aliens. Exhibit 9 is a matrix of visa types and the status of these visa types for income and social security tax withholding. IRS forms that are applicable to payments made to aliens are listed at Exhibit 10.