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IRS Updates Fringe Benefit Guide for State and Local Governments for TCJA and Other Changes

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IRS Publication 5137 (Fringe Benefit Guide) (Feb. 2020)

Available at http://www.irs.gov/pub/irs-pdf/p5137.pdf

The IRS has updated Publication 5137 (Fringe Benefit Guide), which was created to provide federal, state, and local government employers with a basic understanding of the federal tax treatment and reporting rules for a wide variety of fringe benefits. The IRS last revised Publication 5137 in 2014—before the significant fringe benefit changes made by the Tax Cuts and Jobs Act (TCJA) (see our Checkpoint article). The 2020 revision reflects the TCJA changes, but retains the structure and much of the content of the prior version. The 2020 revision updates indexed thresholds and limits, including mileage reimbursement rates, the threshold for determining who is a “control employee,” and the limits for qualified transportation plans. Some of the explanations have been clarified or simplified, revisions have been made to conform to changes in Form 1040, and citations have been added and updated. Other noteworthy changes include—

  • Qualified Transportation Fringe Benefits. The publication explains the TCJA’s suspension until 2026 of the exclusion for qualified bicycle commuting benefits, reorganizes the discussion of the dollar limits and salary reduction rules, updates examples, and clarifies that employers can provide more than one qualified transportation fringe benefit to an employee at the same time.
  • Moving Expenses. The discussion of moving expense reimbursements has been substantially revised to reflect the TCJA’s suspension of the exclusion until 2026 except for certain members of the U.S. Armed Forces on active duty who move because of a permanent change of station. The publication also explains the transition rule for expenses incurred before 2018 but reimbursed later.
  • Company Cars. The discussion of business use of employee-owned vehicles reflects that employees cannot claim itemized deductions for unreimbursed travel expenses during the TCJA’s suspension of miscellaneous itemized deductions until 2026.
  • Health Coverage and Benefits. The discussion of health coverage and benefits has been streamlined, references to self-insurance have been dropped, and the inability of HRAs to offer elections under a cafeteria plan has been clarified. [EBIA Comment: This part of Publication 5137 only lists examples of employer-provided health coverage and refers readers to other publications—such as Publication 969 on HSAs, HRAs, and other account-based plans (see our Checkpoint article).]
  • Meals. The discussion of meals furnished for a charge has been revised to emphasize that whether meals are offered “for the convenience of the employer” is not affected by whether employees can choose to accept or decline meals that are not free of charge. And the entire discussion of meals as entertainment has been deleted.
  • Achievement Awards. All references to the regulations on this subject, including the IRS’s 1989 proposed regulations, have been stripped from this discussion. The description of the average cost limit for qualified plan awards has changed, and language incorporating the proposed regulations’ interpretation of an excludable “nominal” award as an award with a value of $50 or less has been removed. [EBIA Comment: The publication’s revised description of the average cost limit seems to conflict with the statutory language; employers tempted to use the apparently higher average limit described in the publication should consult with their tax advisors regarding the proper limit.]
  • Travel and Transportation Expense Reimbursements. The list of cases and guidance regarding the “sleep/rest test” has been revised and supplemented, and the publication now refers users to the GSA per diem rate webpage for federal per diem rates. Also, the discussion of reimbursements for temporary assignments adds more details regarding travel to a temporary work location and reimbursements for employees whose principal place of business is their residence.
  • De Minimis Fringe Benefits. An example suggesting that daily $1 snacks would not be de minimis benefits has been replaced by an example (that reaches a similar conclusion) involving $5 taxi rides.
  • Education. The description of education that can be excluded as a working condition fringe benefit has been revised to include education that meets certain express requirements of the employer or applicable law.

EBIA Comment: This publication offers valuable insight into the IRS’s views regarding the taxation, withholding, and reporting requirements for many fringe benefits. And unlike many other IRS summaries, Publication 5137 includes citations to statutes, regulations, cases, and official guidance, so it can be useful as a gateway reference, even for private employers who are subject to most of the same rules. The publication’s coverage is not comprehensive in scope or depth, however, so employers and administrators looking for an IRS publication on certain fringe benefits (e.g., adoption assistance, athletic facilities, retirement planning) will want to consult other sources, such as IRS Publication 15-B (Employer’s Tax Guide to Fringe Benefits) (see our Checkpoint article). For more information, see EBIA’s Fringe Benefits manual at Sections IV (“Company Cars and Related Benefits”), VII.A (“De Minimis Fringe Benefits: Overview”), VII.E (“Employee Achievement Awards”), XVI (“Employer-Provided Meals”), XVII (“Moving Expense Benefits”), XX (“Qualified Transportation Plans”), and XXIII (“Working Condition Fringe Benefits”). For more information on HRAs, see EBIA’s Consumer-Driven Health Care manual at Section XXI (“Health Reimbursement Arrangements (HRAs): Introduction and Design Choices”).

Contributing Editors: EBIA Staff.

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