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Fringe Benefits - Can I use Special Accounting Period?

Our HR department just brought over a list of employees that received vouchers for Fitbits. They received the vouchers in late December. Are we able to use the Special Accounting Period for vouchers? I keep seeing it can only be used for Noncash fringes, but was wondering if someone had experience correctly applying that rule to cash/gift cards/vouchers for wellness initiatives.

-John

Comments

  • From: IRS Pub 15-B
    Special accounting rule.
    You can treat the value of taxable noncash benefits as paid on a pay period, quarter, semiannual, annual, or other basis, provided that the benefits are treated as paid no less frequently than annually. You can treat the value of taxable noncash fringe benefits provided during the last 2 months of the calendar year, or any shorter period within the last 2 months, as paid in the next year. Thus, the value of taxable noncash benefits actually provided in the last 2 months of 2019 could be treated as provided in 2020 together with the value of benefits provided in the first 10 months of 2020. This doesn't mean that all benefits treated as paid during the last 2 months of a calendar year can be deferred until the next year. Only the value of benefits actually provided during the last 2 months of the calendar year can be treated as paid in the next calendar year.

    Limitation.
    The special accounting rule can't be used, however, for a fringe benefit that is a transfer of tangible or intangible personal property of a kind normally held for investment or a transfer of real property.

    Conformity rules.
    Use of the special accounting rule is optional. You can use the rule for some fringe benefits but not others. The period of use need not be the same for each fringe benefit. However, if you use the rule for a particular fringe benefit, you must use it for all employees who receive that benefit.

  • Hello John,
    I know this is too late for what you wanted to do, but I saw this and felt I should put in my two cents worth (worth almost as much as free advice).

    I take it the vouchers do not have any cash value and can only be exchanged for fit bits. Unless the fit bit qualifies as medical expense, a de minimis fringe, or a working condition fringe benefit, (or qualifies under another type of exempt fringe benefit) the value of the fit bit must be included in the employee's wages. The value is not the actual cost to the employer, but is the amount the employee would have to pay to purchase the fit bit from a third party.

    On that basis, it might be reasonable to treat the fit bit is the benefit and not the voucher. I think that was your original question.

    However, given the timing, the employees received the vouchers during 2019, but HR did not provide the information to payroll until Jan 2020 and it would be more convenient to treat the vouchers as 2020 wages. Particularly, since you cannot withhold tax from the vouchers.

    With non-cash fringes, you do have time to determine the value and deposit the taxes after the end of the calendar year. You also have time to collect the unwithheld tax (that you deposited on time) from the employees and still report it as 2019 income and "withholding" - even if you collect the money directly from employees rather than deducting it from current income - note that it would have to be a voluntary deduction from payroll and would not affect 2020 tax withholding or reporting. You could also gross up the taxes on the value of the fit bit and pay the taxes for the employee. The amount of the grossed up taxes would be taxable income to the employees for 2020 because they are employee taxes paid by the employer on behalf of the employee 2020.

    Either way you can keep the fit bits in 2019 without invoking the special rule. Then you don't have to worry about the nature of the voucher as cash or non-cash.

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