The Internal Revenue Service (IRS) states that “any fringe benefit an employer provides is taxable and must be included in the recipient’s pay unless the law specifically excludes it.” IRS Publication 15b, which can be accessed on the web at the following address,http://www.irs.gov/pub/irs-pdf/p15b.pdf, explains how these additional earnings may be taxable to the employee. Most of these fringe benefits, except GTL (Group Term Life), will display on your pay-stub, with the income side shown under “Regular Earnings” and the deduction shown under “Fringe Deduction”.
Some of the most common taxable fringe benefits given by Principia are:
Gifts
Any gift given to an employee that was paid for with Principia funds. The only gifts that can be excluded from taxable income are perishable items such as fruit baskets, candy, ham, turkey or flowers. Any gift card, even if it to be used specifically for a food item, is still taxable. (See Principia’s “Gift Policy” for more information).
Group Term Life Insurance (GTL)
Your life insurance policy with Principia is for two times your annual salary. The cost of the coverage that Principia pays ($0.0195 per $1000) over $50,000 is a taxable fringe benefit (See IRS Publication 15-B). The taxable portion is computed using your gross wages, the age you are on December 31 of the taxable calendar year, and a cost table per $1000 of coverage provided by the IRS. On your paycheck under Deductions, you will see “GTL” with a benefit amount. This amount is not the amount deducted from your paycheck, but instead is the value of the taxable benefit that is used to calculate a deduction for social security (6.20%) and Medicare (1.45%) taxes on your paycheck.
For example: You turn 53 years old in the current calendar year and your current annual salary is $55,465, which gives you $111,000 (2 x salary rounded to nearest $10,000) in life insurance coverage. You contribute $10.82 each month for your portion of the coverage ($0.195 * $111) and Principia contributes $10.82. Using the IRS “Cost per $1000 of Protection Table 2.2” your taxable cost per $1000 is $.23 per month.
The monthly taxable benefit calculation is $3.21: $61 ($61,000 is the amount over $50,000 of coverage) x .23 = $14.03 minus $10.82. Because GTL is only subject to social security and Medicare taxes (FICA = 7.65%), $0.83 would be deducted from your gross pay to cover this taxable fringe benefit.
Loan Forgiveness
Your student loan is forgiven each month that you are employed in a regular post at Principia for at least 20 hours per week on a regularly-scheduled basis. Monthly payments are forgiven within the fiscal year (July 1 - June 30) - up to a maximum amount equal to 20% of your annual salary.
The amount forgiven is taxed on a monthly basis and is reflected in your paycheck monthly. Because this is an IRS taxable benefit (seeHandbook for Principia Faculty and StaffandStudent Loans in Accounting), the gross dollar amount is added to your gross wages and shows up in boxes 1, 3 and 5 of your W-2. The applicable taxes (federal, state, social security and Medicare taxes) are deducted from your regular wages using your individual tax rates.
