Tax Guide: Salaries, Wages, and Benefits
Glenn Tyndall, CPA
Salaries and Wages
All compensation for personal services must be included in gross income regardless of the form of payment.
The salaries and wages of employees or officials of federal, state, and local government employees are taxed the same as those in private industry. However, some state and local government employees do not contribute to Social Security and instead contribute the equivalent alternative retirement system.
Pension income paid to retired employees is usually taxable income per Reg.§ 1.61.11.
Compensation Other Than in Cash
When services are paid for in property, the fair market value at the time of receipt must be included in gross income. The fair market value (FMV) of a note receieved for payment of services must be included in income, unless it is provided as security or collatarely for the promise of a future payment in cash. A portion of each payment recieved under the note is excludable from income as a recovery of capital.
Restricted Property Transfers
The value of stock or other property provided by an employer subject to certain restrictions is included in an employee’s gross income when the restrictions are removed, unless you elect to recognize income upon receipt.
Some employer-provided may be excluded from an employee’s gross income.
Benefits excluded from income:
- Educational benefits
If used for personal purposes, these benefits are includible in gross income.
The value of the personal use of an employer-provided car may be computed under annual lease value tables. The annual lease value of an automobile is computed by first determining the fair market value (FMV) of the automobile on the first date it was made available to an employee for personal use. Then, multiply the annual lease value by the percentage of personal miles out of total miles driven by the employee. The IRS publishes the Annual Lease Value table, which can be found on www.irs.gov.
The annual lease value above includes the FMV of maintenance and insurance for the automobile but does not include the value of fuel. The value of fuel can be valued either at its FMV or at 5.5 cents per mile for all miles driven within the United States, Canada, or Mexico.
The value of the personal use of an employer-provided vehicle may be determined by multiplying personal use mileage by the standard mileage rate (51 cents per mile in 2011). The fair market value of the car or truck cannot exceed amounts $15,300 for a passenger automobile other than a truck or van, or $16,200 for a truck or van (Rev. Proc. 2011-11).
Moving expense reimbursements are generally excludable from gross income as a qualified fringe benefit.
Country or Social Club Expenses
Employer-provided country club, social club, or health resort memberships are includible in gross income.