Employee Income from Nonprofit Foundations or Organizations

Policy Statement

It is the policy of the State of North Carolina to comply with all applicable federal and state regulations regarding the payment and taxation of employee business expenses.

Authoritative References

State Budget Manual - Personnel Policies and Regulations Section

IRS Publication 557, Section 501(c) Organizations

Explanation of Policy

Benefits provided to a state employee and paid by nonprofit foundations or organizations are taxable to the employee. Any employee benefit that is paid directly by a foundation or organization must be reported on a Form 1099 and submitted to the employee by the foundation or organization. All agencies or universities that remit payment for employee benefits that are reimbursed by a nonprofit organization or foundation, must include in the employee’s salary the amount of that benefit.

The process for recording employee benefits reimbursed from a nonprofit foundation or organization that is not subject to imputed income involves the following:

Benefits are added to the employee's gross wages and are recorded against account 531574, Additional Employee Benefits.
The benefits are taxed according to the employee's W-4 and NC-4 elections.
The benefits are not subject to retirement contribution.
The amount of the benefit is added as a deduction using deduction code 052, Reimbursement from Employee:

Note: The deduction code must be manually removed before the employee's next payment, if appropriate.

When the payroll is processed, the Central Payroll Division remits a paper check for the amount of the deduction to the agency or university in order to reimburse the original Accounts Payable expense. The agency must receipt the deposit of the reimbursement against the account from which the original employee benefit was made.

Recording Imputed Income

The Internal Revenue Service requires that the imputed cost of life insurance coverage in excess of $50,000 be included in income, using the IRS Premium Table, and is subject to income, social security and Medicare taxes. A taxable fringe benefit arises if coverage exceeds $50,000 and the policy is considered carried directly or indirectly by the employer. A policy is considered to be carried directly by the employer if the employer pays any cost of the life insurance, even if the payments are reimbursed by a nonprofit foundation or organization.

The process for recording imputed income related to life insurance benefits paid by an agency or university but reimbursed from a nonprofit foundation or organization involves the following:

Imputed income is added to the employee's gross wages and is recorded against account 531574, Additional Employee Benefits.

The imputed income is taxed according to the employee's W-4 and NC-4 elections.

The imputed income is not subject to retirement contribution.

The amount of the imputed income is added as a deduction using deduction code 055, Imputed Income (Group Term Life).

Note: The deduction code must be manually removed before the employee's next payment, if appropriate.

When the payroll is processed, the Central Payroll Division nets the cost against the employer salary expense.

Scope

This policy applies to all State entities.

Exceptions

There are no exceptions to this policy.

Glossary of Terms

Imputed Income
Imputed income is the term the I.R.S. applies to the value of any benefit or service that should be considered income for the purposes of calculating federal taxes. Some of the benefits that are considered Imputed Income include:

Value of employer provided life insurance coverage greater than $50,000.

Employer-provided, tax-free child care benefits in excess of $5,000
(such as the Dependent Care Reimbursement Account or Cyert Center Sliding Scale benefits)

Health, medical and dental insurance coverage for an unmarried domestic partner.

The value of life insurance coverage over $50,000 is not the same as the policy's coverage level. The value of the coverage is the amount the IRS assumes the employee would have to pay to purchase a policy in that amount in the private market. This value is based on the employee’s age and the amount of coverage purchased. The Imputed Income will be added to the employee’s pay for tax purposes, and the additional taxes that are owed will be withheld from the employee’s paycheck each month.

Adopted: January 20, 2006

Version: 2005-0701.01