"cagauss" <fdashiell[at]comcast.net> writes:

- quote -

Don't be so sure the turkey would be a non-taxable gift.
If it was worth more than whatever the current de minimus
threshold for such things is, the employee would have to
pay income and FICA taxes on it.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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Well, it took some digging but I finally located a statement
which seems to cover this situation. I am sure there is a
Reg or a Tax Code section for this, but Pub 525 says all
fringe benefits are taxable and includable in compensation
unless explicitly exempted. Health insurance coverage is
exempted, but the cash-in-lieu is not. I guess it's like a
year-end gift. An employee can be given a holiday turkey by
the employer as a non-taxable gift, but if a vegetarian
declines and takes an equivalent $25 gift certificate at the
market he must include it in income and pay tax on it.

This was extremely obscure for me to decide. And I am a
well-educated professional person. I pity those fellow
citizens who do not have the benefit of an advanced
education or the wherewithal for independent research. The
situation is totally out-of-hand.

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Well, it took some digging but I finally located a statement
which seems to cover this situation. I am sure there is a
Reg or a Tax Code section for this, but Pub 525 says all
fringe benefits are taxable and includable in compensation
unless explicitly exempted. Health insurance coverage is
exempted, but the cash-in-lieu is not. I guess it's like a
year-end gift. An employee can be given a holiday turkey by
the employer as a non-taxable gift, but if a vegetarian
declines and takes an equivalent $25 gift certificate at the
market he must include it in income and pay tax on it.

This was extremely obscure for me to decide. And I am a
well-educated professional person. I pity those fellow
citizens who do not have the benefit of an advanced
education or the wherewithal for independent research. The
situation is totally out-of-hand.

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"cagauss" <fdashiell[at]comcast.net> writes:

- quote -

There are plenty of things about the tax code that
are arguably "fundamentally unfair", but that doesn't
mean a taxpayer is allowed to report it the way he wished
the law read.

- quote -

Or, rather, the company gives the employee a choice between
the fringe and a cash raise.

- quote -

(1) Such as? [not counting things such as loans or
expense/tuition reimbursements made persuant to an
accountable plan]
(2) It may be possible for a person to be both an employee
and contractor to the same org at the same time, but an
individual's receipt of both a W-2 and 1099-MISC from the
same org doesn't itself prove they are both. The facts and
circumstances govern worker status, not what forms the payor
chooses to report on.
(3) In your situation, on what grounds do you claim your
wife is both an employee and contractor? From what you've
said in an earlier post, the 1099-MISC was issued to "help
her out", not because she was a bona fide contractor. And
in any event, if if she were a bona fide contractor the
1099-MISC amount would be taxable and subject to SE tax, so
she'd end up in the same position (slightly worse, actually)
as if it had been reported as wages.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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Be careful about sounding holier-that-thou when you have a
situation where the tax is fundamentally unfair. The
employer provides a fringe benefit for employees: paid
medical insurance (non-taxable), or a cash-in-lieu option if
an employee decides to be self-insured or otherwise provided
for in some fashion and declines the employer-paid
insurance. But the employee gets screwed by the government
if they choose the cash-in-lieu option. The non-taxable
fringe benefit becomes taxable, it would appear.

You say

"The fact that your wife is an employee of the imployer
makes it wage income, regardless of how the employer
reported it."

Many cash payments by an employer to an employee are not
wages. It is even possible for a person to be an employee
and an independent contractor to the same organization at
the same time [Reece T.C. memo 1992-335].

In the case of the cash-in-lieu, it would seem to be common
enough to be discussed one of the regs, but I can't find it.
Another example of how absolutely obscure the tax can be
for the everyday person or even the everyday employer.

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"cagauss" <fdashiell[at]comcast.net> writes:

- quote -

What do you mean "if we choose to report it"? You are
required to report it. Though if you want to admit
publically that you are planning to be a tax cheat, that's
your choice.

- quote -

It *is* wages.

The form that income is reported on does not control the
character of the income. That the employer reported wage
income on a 1099-MISC instead of a W-2 doesn't magically
make it non-wage income. The fact that your wife is an
employee of the imployer makes it wage income, regardless of
how the employer reported it.

If the employer had reported it the way is supposed to be
reported (i.e. on the W-2), then Medicare tax would have
been paid on it by you and the employer. So I would argue
the only proper way to report this is in such a way that at
least you pay your share of medicare tax on it. That could
be Sched C. It also could be by using the "Unreported Tips"
form, where you cross out "Tips" everywhere it appears on
the form and write in "Wages" (I believe someone in this
very group mentioned that in the past couple of weeks).

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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The effect is de minimus. She is already over the max for
Social Security tax, so only medicare would be owing. This
is not the reason they did it this way. I sense it was more
to do her a favor ... and keep it off the W2. The 1099-MISC
was handwritten with her name and address, with no SSN
showing (technically a violation, I believe). Of course no
comment or advice was provided, I suspect intentionally.

My question really was not how should the payer report it.
But where should it be reported on Form 1040 (if we choose
to report it)? It is not wages, salaries, tips, etc. Maybe
the "Other income " line (Line 21 for 2005)?

.... Fred

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Rich Carreiro <rlcarr[at]animato.arlington.ma.us> wrote:
- quote -

What I might do is to put the money into a tax-exempt health
savings plan. That way it won't be taxed, and you can use
it for deductibles and other health related expenses your
insurance policy might not cover.

Stu

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"cagauss" <fdashiell[at]comcast.net> writes:

- quote -

Yes it is taxable. How to report it is more interesting.
In my mind it should have been reported on her W-2 (so it
looks like her employer is trying to rip her off a tad by
trying to foist the employer half of FICA on that money off
on her), which is how I've seen it in cases where I've seen
this sort of thing.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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My wife declines medical insurance benefits offered by her
employer because she is covered as my spouse under my
employer's plan. Her employer pays her $2000 per year as a
substitute for this benefit, not reported on W-2 but on a
1099-MISC, not subject to withholding. The medical benefit
is of course not a taxable benefit. But is the cash-in-lieu
taxable? How should that be reported?

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