Education & Work-Related Expenses
This is archived information that pertains only to the 2002 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
Is the exclusion from income of up to $5,250 of employer-provided educational assistance under a qualified program still available?
Yes, but for 2002, it applies only to benefits you receive for undergraduate courses. With the year 2002, employer-provided educational assistance will include graduate level courses. For more information, refer to Publication 508 (PDF), Educational Expenses.
References: 4.3 Interest, Dividents, Other Types of Income: 1099-MISC, Independent Contractors, and Self-employed I received a Form 1099-MISC for an employee bonus. How do I report it?
Employee bonuses should be reported on Form W-2, not on Form 1099-MISC. Contact your employer and ask them to issue the correct form. If they will not issue you a Form W-2 for the bonus, complete Form 4852 (PDF), Substitute for Form W-2, Wage and Tax Statement. The bonus amount is reported on Line 7 on your Form 1040 or 1040A or line 1 of Form 1040EZ (PDF).
References: 4.6 Interest, Dividents, Other Types of Income: Employee Reimbursements, Form W-2, Wage Inquiries Is tuition reimbursement for school a form of taxable income or not?
If you receive educational assistance benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits each year. This means your employer should not include the benefits with your wages, tips, and other compensation shown in box 1 of your Form W-2. You do not have to include the benefits on your income tax return.
To qualify as an educational assistance program, the plan must be written and must meet certain other requirements. Your employer can tell you whether there is a qualified program where you work.
Tax-free educational assistance benefits include payments for tuition, fees and similar expenses, books, supplies, and equipment. The payments do not have to be for work-related courses. Educational assistance benefits do not include payments for the following items:
- Meals, lodging, transportation, or tools or supplies (other than textbooks) that you can keep after completing the course of instruction.
- Education involving sports, games, or hobbies unless the education has a reasonable relationship to the business of your employer, or is required as part of a degree program.
- With respect to expenses relating to courses beginning after December 31, in 2005 graduate level courses will qualify for employer-provided educational assistance. Refer to Publication 553 (PDF), Highlights of 2001 tax changes.
References: For further information, please see, Publication 508 (PDF), Tax Benefits for Work Related Education.Tax Topic 513 Tax Topic 513, Education Expenses
References: My employer is including my graduate school tuition reimbursements on my Form W-2. Where do I claim education expenses on my Form 1040?
The law changed in 2002 to allow up to $5,250 in graduate school tuition reimbursements to be excluded from gross income. If your employer has included graduate school tuition reimbursements amounting to $5,250 or less with your wages, tips, and other compensation shown in box 1 of your W-2, ask your employer for a corrected W-2. If you have received graduate school tuition reimbursements that are includable in gross income, you may deduct expenses attributable to those amount on Form 1040, Schedule A (PDF), Itemized Deductions.
References: Is my employer supposed to include mileage reimbursement as a part of my gross income on my Form W-2, and do I include it on my return as wages, tips & salaries?
That depends on whether you were reimbursed under an accountable plan or under a nonaccountable plan. Generally, an employer will have an accountable plan if it pays business expenses that would otherwise be deductible by the employee, requires the employee to substantiate the expense, and does not permit the employee to keep any reimbursements that exceed expenses. If the employer does not use an accountable plan, mileage reimbursement would be included in your wages on Form W-2. For more information on reimbursements and accountable plans, refer to Chapter 6 of Publication 463 (PDF), Travel, Entertainment, Gift, and Car Expenses.
If your mileage reimbursement is included in box 1 on Form W-2, you need to enter that amount on the "wages, salaries, and tips" line of your tax return. If you itemize your deductions on Form 1040, Schedule A (PDF), Itemized Deductions, you may deduct the business transportation expense as an employee business expense, subject to the 2% limitation of adjusted gross income. You may usually deduct either your actual business automobile expenses or use the standard mileage rate. For more information on when you may use the standard mileage rate, refer to Chapter 4 of Publication 463 (PDF), Travel, Entertainment, Gift, and Car Expenses.
References: What is meant by "dependent care benefits" (Box 10 of Form W-2)?
Dependent care benefits are amounts your employer paid directly to either you or your care provider for the care of your qualifying person(s) while you worked. They also include the fair market value of care in a day-care facility provided or sponsored by your employer. Dependent care benefits include amounts placed into a flexible spending account under a salary reduction arrangement if the benefit provided was day care. If you have an amount in Box 10 of the Form W-2 (PDF), you must complete Form 2441, Child and Dependent Care Expenses (PDF) when you file the Form 1040. If you file the Form 1040A (PDF), complete Schedule 2.
References: Should Line 10, Dependent Care Benefits, of my Form W-2 be included when calculating my income?
A portion of the amount in Box 10 of the Form W-2 may be includable in your income. Please refer to the Instructions for Form 2441, Child and Dependent Care Expenses, to determine how much, if any, of the dependent care benefits may be excluded. If you meet the requirements described in Form 2441 (PDF), Child and Dependent Care Expenses, you can exclude up to $5,000 of dependent care benefits provided under a qualified employer plan. However, this amount is reduced or eliminated if your earned income (or your spouse's earned income) is less than $5,000, or if your child is not under age 13. Any benefits that exceed the exclusion limit ($5,000) are also includable in your income, and your employer should have included these amounts in Boxes 1, 3, and 5 of your Form W-2 in addition to reporting these amounts in Box 10. The amount you can exclude is figured and claimed by completing Part III of Form 2441 or Schedule 2 of Form 1040A.
References: 7.1 Child Care Credit/Other Credits: Child and Dependent Care Credit & Flexible Benefit Plans I paid into a dependent care benefits plan and the amount is shown in Box 10 of my Form W-2. However, the cost paid to the child care provider was more. Can the additional expense not paid into the dependent care benefits plan and not shown in Box 10 of the W-2 be claimed on Form 2441?
That depends on the amount you elected to have contributed to the flexible spending arrangement. The exclusion from income for employer-provided benefits can be as high as $5,000, while the credit for dependent care expenses is based on annual dollar limits of $2,400 for one person and $4,800 for two or more persons. You must reduce those dollar limits by the amount of excludible dependent care benefits. If you had expenses that you paid yourself and the employer provided benefits were less than the applicable dollar limit, you can also claim the credit. Complete Part III of either Form 2441 (PDF), Child and Dependent Care Expenses, or Form 1040A, Schedule 2 (PDF), Child and Dependent Care Expenses for Form 1040A Filers, to determine the excluded benefits and whether you can claim the credit.
Future Change. The applicable percentage and allowable employment-related expenses increase beginning in 2003. The maximum applicable percentage will be increased to 35 percent and the allowable employment-related expenses will be increased to $3,000 for one qualifying child and $6,000 for two or more qualifying children (Code Sec. 21, as amended by the Economic Growth and Tax Relief Reconciliation Act of 2001). Thus, the maximum credit will rise to $1,050 for one qualifying child and $2,100 for two or more qualifying children.
References: If my employer did not put the amount I paid into a flexible spending account for dependent care in box 10 on my Form W-2, can I claim the Child and Dependent Care Tax Credit?
If the omission was simply a clerical oversight, you may not claim the child care credit. If the flexible spending account was an eligible plan under Internal Revenue Code Section 125, the amount of the salary reduction that was contributed to your account should appear in box 10 of your Form W-2. Request a corrected Form W-2 from your employer.
You may claim the child care credit if the contribution to your flexible spending account was less than your annual dollar limitation for eligible expenses ($2,400 for one person, or $4,800 for two or more persons). Even if you cannot claim the credit, you must complete Part III of either Form 2441 (PDF), Child and Dependent Care Expenses, or Form 1040A, Schedule 2 (PDF), Child and Dependent Care Expenses for Form 1040A Filers, to exclude your employer provided benefits from your income. If the amount you paid into a flexible spending account reduced your wages in box 1 of Form W-2, it is considered an employer provided benefit.
References: I was under the impression that a Dependent Care Benefit Plan would benefit me, not penalize me with an increase in taxes. How can my employer say they provided a benefit in the total amount of $3,000 in W-2, Block 10 when I had $3,000 in wages set aside for dependent care benefits?
The actual mechanism for this type of plan is an agreement to voluntarily reduce your salary in return for an employer-provided fringe benefit. These plans must be set up this way because you have a choice of whether to receive the cash wages or the benefits, which would make the benefit taxable to you. Therefore, the benefits are actually employer provided or funded. You are receiving a tax benefit because you are not paying taxes on the money that is set aside.
References: How do I complete Form 2441 if I have flexible dependent care benefits through my employer?
You must complete Part III of Form 2441 (PDF), Child and Dependent Care Expenses, (or Form 1040A, Schedule 2 (PDF), Child and Dependent Care Expenses for Form 1040A Filers) to claim the exclusion of the benefits from income even if you cannot claim the credit. Enter your total employer-provided dependent care benefits on line 10 (this amount should appear in box 10 of your Form W-2) and your qualified expenses on line 13. The last five lines of Part III will determine whether you can also take the credit and what your dollar limit is on qualified expenses. Also Complete Part I, Persons or Organizations Who Provided the Care.
References: I am self-employed, but did not have a net profit last year. Is it correct that we do not qualify for the Child Care Credit on our joint return even though my wife received dependent care benefits on her W-2 box 10?
Generally, yes. When you complete Part III of Form 2441 (PDF), Child and Dependent Care Expenses, which you must do to claim excluded benefits, line 17 asks you to enter the smallest of: - your dependent care benefits,
- your qualified expenses,
- your earned income, or
- your spouse's earned income.
If you had a loss from self-employment and no other earned income, your earned income would be $0, unless you can use one of the optional methods on Form 1040, Schedule SE (PDF), Self-Employment Tax. That would mean that the amount in box 10 of your wife's Form W-2 would have to be included in income. (For more information on the optional methods of computing self-employment tax, refer to Publication 533 (PDF), Self-Employment Tax, or Instructions for Form 1040, Schedule SE, Self-Employment Tax.
The income considered to be earned by a spouse who is a full-time student or who is incapable of self-care is $200 per month if there's one qualifying individual in the household, and $400 a month if there are two or more qualifying individuals. However, this income is deemed to be earned only by one spouse for any given month. (Code Sec. 21 (d) (2)).
References: Is a flexible spending account for dependent care a dependent care benefit?
Yes. If the flexible spending account is providing you with a dependent care benefit, then it should be reported in box 10 of your Form W-2. These accounts are funded through a salary reduction, so the contribution to the account is considered an employer contribution. When you receive a dependent care benefit from your employer, you must complete Part III of Form 2441 (PDF), Child and Dependent Care Expenses, (or Form 1040A, Schedule 2 (PDF), Child and Dependent Care Expenses for Form 1040A Filers) to see if the benefits are fully excluded from income. You may be able to also claim a credit for child and dependent care expenses if the excluded benefits are less than the dollar limit on qualified expenses for the credit.
References: 12.3 Small Business/Self-Employed/Other Business: Form W-2, FICA, Medicare, Tips, Employee Benefits What publications are available that would explain the taxation policy for Flexible Spending Arrangements (FSAs)?
There is limited information about cafeteria plans in Publication 535 (PDF), Business Expenses.
References: Is an employer required to provide the IRS with a signed receipt from a dependent care provider in order to release funds that are withheld from an employee's pretax salary and deposited to a dependent care flexible spending account?
The Internal Revenue Service does not specify a method for the documentation of reimbursable expenditures. Good accounting and business practices should dictate the type and sufficiency of documentation provided by employees who claim reimbursable expenses. Please review the plan document to determine if it specifies the type(s) of documentation acceptable.
References: Can an employer pay for health care costs of an employee as a fringe benefit?
Yes, an employer may pay for health care costs of an employee as a nontaxable fringe benefit. Refer to Publication 535 (PDF), Business Expenses, for a complete discussion of employee benefit programs.
References: If our company pays for the employee's health care costs directly to the medical facility, as opposed to a reimbursement, is the employee benefit reported on Form W-2 and subject to social security withholding?
Health care costs paid directly to the medical facility is a nontaxable employee benefit provided that it is paid as part of an accident and health plan. Refer to Publication 535 (PDF), Business Expenses, for more information on employee benefit programs.
References: If an employer pays health insurance benefits for the employee and dependents, are both the employee's and the dependent's benefits income to the employee?
If an employer provides health insurance for the employees, the benefit provided is not taxable to the employee. An employer can generally deduct the cost of a group health plan on the "employee benefit programs" line of their business income tax return.
Group health plan defined: This (including a self-insured plan) is a plan that provides medical care to your employees, former employees, and their spouses and dependents. The plan can provide care directly or through insurance, reimbursement, or otherwise. The employer can exclude the cost of providing group health insurance to an employee from his or her wages.
References: If we give an employee a monthly car allowance, must it be included in the employee's taxable wages on their Form W-2?
Generally yes, unless paid under an accountable plan.
To be an accountable plan, your reimbursement or expense allowance arrangement must meet the qualifying requirements, explained later. A reimbursement or expense allowance arrangement is a system by which you substantiate and pay the advances, reimbursements, and charges for your employees' business expenses. If you make a single payment to your employees and it includes both wages and an expense reimbursement, you must specify the amount of the reimbursement.
Qualifying requirements. To qualify as an accountable plan, your reimbursement or expense allowance arrangement must require your employees to meet all of the following rules: - They must have paid or incurred deductible expenses while performing services as your employees,
- They must adequately account to you for these expenses within a reasonable period of time, and
- They must return any excess reimbursement or allowance within a reasonable period of time.
Please refer to Publication 535 (PDF), Business Expenses, for additional information about accountable and nonaccountable plans.
References: If our business pays for an employee's airfare on a business trip, but the employee does not submit an expense form relating to the travel, do we need to issue a Form 1099-MISC?
No, you should report the amounts as wages on Form W-2. Generally, Form 1099-MISC is not issued to employees. Payments to your employee for travel and other necessary expenses of your business under a nonaccountable plan are wages and subject to income tax withholding and payment of social security, Medicare, and FUTA taxes. Your payments are treated as paid under a nonaccountable plan if: - Your employee is not required to or does not substantiate timely those expenses to you with receipts or other documentation, or
- You advance an amount to your employee for business expenses and your employee is not required to or does not return timely any amount he or she does not use for business expenses.
The amount of the airfare should be included on the employee's Form W-2.
References: How should a tuition reimbursement program for employees be reported as income to an employee? Should the employee be taxed at the 27% rate for supplemental payments on the next pay check after successful completion of the course or is this something that we just include on the W-2?
For employment tax and withholding purposes, you can treat fringe benefits as paid on a pay period, a quarter, a semiannual, annual, or other basis as long as the benefits are treated as paid no less frequently than annually. You do not have to choose the same period for all employees.
You can change the period as often as you like as long as you treat all the benefits provided in a calendar year as paid no later than December 31. You can also treat the value of a single fringe benefit as paid on one or more dates in the same calendar year, even if the employee receives the entire benefit at one time.
You can add the value of fringe benefits to regular wages for a payroll period and figure income tax withholding on the total, or you can withhold Federal income tax on the value of fringe benefits at the flat 27% rate applicable to supplemental wages. You must withhold the applicable income, social security, and Medicare taxes on the date or dates you chose to treat the benefits as paid. Deposit the amounts withheld as discussed in section 11 of Publication 15 (PDF), Circular E, Employer's Tax Guide.
References:
Tax Topics & FAQs | 2002 Tax Year Archives | Tax Help Archives | Home
|
