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austin3515

Paid leaves under FMLA/ and now FFCRA

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Someone is out sick and eligible for pay under one of these paid leave rules.  I have essentially no knowledge or expertise in what paid leaves are all about but now my client wants to know if they pay it, is it eligible compensation?  They DO exclude taxable fringe benefits.  Would this be considered a taxable fringe benefit?

I'm inclined to say it is because it seems to go beyond the normal "I get 3 sick days a year" type of policy where if someone stays home sick, its just part of their normal pay.

But I'm in the dark here...

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 I have not considered this question, and have not read the relevant law.  But:

 

Absent a provision of applicable law or in the plan’s governing document, perhaps a plan’s administrator should apply or interpret a plan’s definition of compensation so that pay for a leave required under the Families First Coronavirus Response Act is compensation to the same extent that pay for a somewhat similar leave not required under that Act is compensation.

 

An administrator might be reluctant to treat a payment of wages as a fringe benefit within the meaning of the plan’s compensation definition if the benefit is not of a kind described in Internal Revenue Code of 1986 § 132 or some analogous fringe benefit.

 

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6 hours ago, austin3515 said:

Someone is out sick and eligible for pay under one of these paid leave rules.  I have essentially no knowledge or expertise in what paid leaves are all about but now my client wants to know if they pay it, is it eligible compensation?  They DO exclude taxable fringe benefits.  Would this be considered a taxable fringe benefit?

I'm inclined to say it is because it seems to go beyond the normal "I get 3 sick days a year" type of policy where if someone stays home sick, its just part of their normal pay.

But I'm in the dark here...

Of course we will be looking for guidance, but paid leave will show as compensation on the W-2 and if that's the definition used for plan purposes (without any modifications), then the leave counts.  Also, be aware that hours will also probably count during the leave since the definition of hours includes hours for which you are paid or entitled to payment, but it is also customarily limited to no more than 500 hours for any period of time when no services are paid.   Document language will almost definitely spell out those provisions.

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31 minutes ago, austin3515 said:

But is it a taxable fringe benefit?  That's the real question here.  Anyone know or have a thought?

More direct: No. It's not a FRINGE. It's actual PAY.

This might help (and here's the link to IRS Pub 15-B): https://www.irs.gov/pub/irs-pdf/p15b.pdf

Understanding Fringe Benefits

Common fringe benefits include health insurance, life insurance, tuition assistance, childcare reimbursement, cafeteria subsidies, below-market loans, employee discounts, employee stock options, and personal use of a company-owned vehicle.

 

[Important: The companies that compete for the best talent in highly competitive fields may offer the most extraordinary fringe benefits.]

 

Uncommon fringe benefits may fit the company profile. PetSmart And Dogtopia both operate pet-friendly workplaces. Ben&Jerry's rewards its workers with free ice cream. Patagonia's headquarters features extensive volleyball courts and yoga classes.

 

The companies that compete for the best talent in highly competitive fields may offer the most extraordinary fringe benefits. Alphabet, the parent company of Google, is known for benefits that include free commuter bus service and a free gourmet cafeteria. Microsoft gives 20 weeks of paid time off to new birth mothers and 12 weeks for other new parents.

 

Special Considerations

By default, fringe benefits are taxable unless they are specifically exempted. Recipients of taxable fringe benefits are required to include the fair market value of the benefit in their taxable income for the year.

 

The Internal Revenue Service (IRS) maintains a list called the Tax Guide to Fringe Benefits. As of 2019, the list of fringe benefits excluded from income taxes includes:

 
  • Accident and health benefits
  • Achievement awards
  • Adoption assistance
  • Athletic facilities
  • Commuting benefits
  • De minimis (minimal) benefits
  • Dependent care assistance
  • Educational assistance
  • Employee discounts
  • Employee stock options
  • Employer-provided cell phones
  • Group-term life insurance coverage
  • Health savings accounts (HSA)
  • Lodgings on business premises
  • Meals
  • No-additional-cost services
  • Retirement planning services
  • Tuition reduction 
  • Working conditions benefits
 

All of these exemptions are subject to certain conditions, many of them complex. For example, achievement awards are only exempt up to a value of $1,600 for qualified plan awards and a value of $400 for non-qualified plan awards. Qualified plan awards are open to all employees, not just highly-paid employees.

 

Other exemptions are not available to highly compensated employees if the benefits are given to them but not rank-and-file employees. These include employee discounts, adoption assistance, and dependent care assistance.

 

Most but not all fringe benefits that are income tax-exempt are also exempt from Social Security, Medicare, and federal unemployment taxes. Adoption assistance is exempt from income tax only.

 

Valuing Fringe Benefits

Any fringe benefit not named above, or any of the benefits named above which does not conform to IRS rules for exemption, is taxable. Those rules are complex too.

 

For example, working condition benefits are taxable to the extent that they are for personal use. For example, if an employee is given a laptop, the taxable income would be the percentage of the laptop's fair market value that is devoted to personal use. If 80% of its use is personal, the taxable income is 80% of the value of the computer.

 

In general, fringe benefits are valued at fair market value. This is the amount the employee would pay for the same benefit at retail. (For related reading, see "What are Some Examples of Common Fringe Benefits?")

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Isn't paid sick leave a "welfare benefit"? Does your plan definition of compensation exclude welfare benefits?  Welfare benefits can be excluded and still meet 414s safe harbor definition.

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20 hours ago, JRN said:

Isn't paid sick leave a "welfare benefit"? Does your plan definition of compensation exclude welfare benefits?  Welfare benefits can be excluded and still meet 414s safe harbor definition.

Not usually.  Read this:

Payroll Practice Exception The “payroll practice” exception from ERISA coverage is the most relevant exemption for employer-paid sick or family leave plans. Most often, sick, vacation, and other paid-time-off (PTO) compensation is disbursed from an employer’s general assets. Spared from the definition of an “employee welfare benefit plan” is the “payment of an employee’s normal compensation, out of the employer’s general assets, on account of periods of time during which the employee is physically or mentally unable to perform his or her duties, or is otherwise absent for medical reasons (such as pregnancy, a physical examination, or psychiatric treatment).”   26 C.F.R. § 2510.3-1(b)(2)

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8 hours ago, austin3515 said:

See I KNEW this was going to happen.

"What" was going to happen?  Someone not having all the complexity of our business definitions in their head?  Sure, that happens in many of the posts. 🙂 

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