Page 51 - 2020 Publication 17

14:38 - 19-Jan-2021
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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
award by itself would be excluded from income. to your tax return a copy of the receipt or state- • The special accounting period rule: bene-
However, because the $1,750 total value of the ment given to you by the agency you repaid to fits provided during the last 2 months of the
awards is more than $1,600, Ben must include explain the difference between the wages on calendar year (or any shorter period) are
$150 ($1,750 – $1,600) in his income. the return and the wages on your Forms W-2. treated as paid during the following calen-
Differential wage payments. This is any pay- Outplacement services. If you choose to dar year. For example, each year your em-
ployer reports the value of benefits provi-
ment made to you by an employer for any pe- accept a reduced amount of severance pay so ded during the last 2 months of the prior
riod during which you are, for a period of more that you can receive outplacement services year and the first 10 months of the current
than 30 days, an active duty member of the uni- (such as training in résumé writing and inter- year.
formed services and represents all or a portion view techniques), you must include the unre-
of the wages you would have received from the duced amount of the severance pay in income. Your employer doesn’t have to use the same
employer during that period. These payments accounting period for each fringe benefit, but
are treated as wages and are subject to income Sick pay. Pay you receive from your employer must use the same period for all employees
while you’re sick or injured is part of your salary
tax withholding, but not FICA or FUTA taxes. who receive a particular benefit.
The payments are reported as wages on Form or wages. In addition, you must include in your You must use the same accounting period
income sick pay benefits received from any of
W-2. the following payers. that you use to report the benefit to claim an
Government cost-of-living allowances. • A welfare fund. employee business deduction (for use of a car,
for example).
Most payments received by U.S. Government
civilian employees for working abroad are taxa- • A state sickness or disability fund. Form W-2. Your employer must include all tax-
ble. However, certain cost-of-living allowances • An association of employers or employees. able fringe benefits in box 1 of Form W-2 as wa-
are tax free. Pub. 516, U.S. Government Civil- ges, tips, and other compensation and, if appli-
ian Employees Stationed Abroad, explains the • An insurance company, if your employer cable, in boxes 3 and 5 as social security and
tax treatment of allowances, differentials, and paid for the plan. Medicare wages. Although not required, your
other special pay you receive for employment However, if you paid the premiums on an acci- employer may include the total value of fringe
abroad. dent or health insurance policy yourself, the benefits in box 14 (or on a separate statement).
Nonqualified deferred compensation plans. benefits you receive under the policy aren’t tax- However, if your employer provided you with a
vehicle and included 100% of its annual lease
Your employer may report to you the total able. For more information, see Pub. 525, Taxa- value in your income, the employer must sepa-
amount of deferrals for the year under a non- ble and Nontaxable Income. rately report this value to you in box 14 (or on a
qualified deferred compensation plan on Form Social security and Medicare taxes paid by separate statement).
W-2, box 12, using code Y. This amount isn’t in- employer. If you and your employer have an
cluded in your income. agreement that your employer pays your social
However, if at any time during the tax year, security and Medicare taxes without deducting Accident or Health Plan
the plan fails to meet certain requirements, or them from your gross wages, you must report In most cases, the value of accident or health
isn’t operated under those requirements, all the amount of tax paid for you as taxable wages plan coverage provided to you by your em-
amounts deferred under the plan for the tax on your tax return. The payment is also treated ployer isn’t included in your income. Benefits
year and all preceding tax years to the extent as wages for figuring your social security and you receive from the plan may be taxable, as
vested and not previously included in income Medicare taxes and your social security and explained later under Sickness and Injury Bene-
are included in your income for the current year. Medicare benefits. However, these payments fits.
This amount is included in your wages shown aren’t treated as social security and Medicare For information on the items covered in this
on Form W-2, box 1. It’s also shown on Form wages if you’re a household worker or a farm
W-2, box 12, using code Z. worker. section, other than long-term care coverage,
see Pub. 969, Health Savings Accounts and
Note received for services. If your employer Stock appreciation rights. Don’t include a Other Tax-Favored Health Plans.
gives you a secured note as payment for your stock appreciation right granted by your em- Long-term care coverage. Contributions by
services, you must include the fair market value ployer in income until you exercise (use) the
(usually the discount value) of the note in your right. When you use the right, you’re entitled to your employer to provide coverage for
long-term care services generally aren’t inclu-
income for the year you receive it. When you a cash payment equal to the fair market value of
later receive payments on the note, a propor- the corporation's stock on the date of use minus ded in your income. However, contributions
made through a flexible spending or similar ar-
tionate part of each payment is the recovery of the fair market value on the date the right was
the fair market value that you previously inclu- granted. You include the cash payment in your rangement offered by your employer must be
included in your income. This amount will be re-
ded in your income. Don’t include that part income in the year you use the right.
again in your income. Include the rest of the ported as wages in box 1 of your Form W-2.
payment in your income in the year of payment. Fringe Benefits Contributions you make to the plan are dis-
If your employer gives you a nonnegotiable cussed in Pub. 502, Medical and Dental Expen-
unsecured note as payment for your services, Fringe benefits received in connection with the ses.
payments on the note that are credited toward performance of your services are included in Archer MSA contributions. Contributions by
the principal amount of the note are compensa- your income as compensation unless you pay your employer to your Archer MSA generally
tion income when you receive them. fair market value for them or they’re specifically aren’t included in your income. Their total will
Severance pay. If you receive a severance excluded by law. Refraining from the perform- be reported in box 12 of Form W-2 with code R.
payment when your employment with your em- ance of services (for example, under a cove- You must report this amount on Form 8853,
Archer MSAs and Long-Term Care Insurance
ployer ends or is terminated, you must include nant not to compete) is treated as the perform-
this amount in your income. ance of services for purposes of these rules. Contracts. File the form with your return.
Accrued leave payment. If you’re a federal Accounting period. You must use the same Health flexible spending arrangement
employee and receive a lump-sum payment for accounting period your employer uses to report (health FSA). If your employer provides a
health FSA that qualifies as an accident or
accrued annual leave when you retire or resign, your taxable noncash fringe benefits. Your em- health plan, the amount of your salary reduc-
this amount will be included as wages on your ployer has the option to report taxable noncash tion, and reimbursements of your medical care
Form W-2. fringe benefits by using either of the following expenses, in most cases, aren’t included in
If you resign from one agency and are reem- rules. your income.
ployed by another agency, you may have to re- • The general rule: benefits are reported for
pay part of your lump-sum annual leave pay- a full calendar year (January 1–December Note. Health FSAs are subject to a limit on
ment to the second agency. You can reduce 31). salary reduction contributions for plan years be-
gross wages by the amount you repaid in the ginning after 2012. For tax years beginning in
same tax year in which you received it. Attach
Chapter 5 Wages, Salaries, and Other Earnings Page 47