When should an employee elect to be taxed on fringe benefits received?

Article Abstract:

Cafeteria plans allow employees to choose between taxable and non-taxable benefits. When choosing benefits, taxpayers must be concerned about the impact of benefit choice upon future Social Security (SS) benefits due to reductions in gross income. The value of nontaxable benefits are excluded from gross income and may reduce future SS benefits as determined by Averaged Indexed Monthly Earnings (AIME), an average of taxpayers' income for their 35 highest indexed years, which is used to determine benefits. To ascertain the impact of benefit choice on future benefits, AIME should be computed and the Primary Insurance Amount (PIA), the amount that will be received from SS, should be determined. When considering the desirability of taxable or nontaxable benefits, taxpayers should consider income history and marginal PIA rate, the spouses' retirement situation, and state and local taxation.

Methods, Taxation, Tax accounting, Employee benefits, Social security, Cafeteria benefit plans

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Spreadsheet allows making the best choices in an FSA

Article Abstract:

Flexible spending accounts (FSAs) are often provided by employers as a tax-effective mechanism through which employees can curb health care and dependent care costs. Employers can use computer models to ascertain the optimal contribution level for each employee so that employees can avoid making excessive payments to their FSA plan. A template, which was developed using Lotus 1-2-3, is provided to illustrate how optimal FSA contributions can be determined. The template provided may be used with any suitably compatible spreadsheet such as Quattro or Works.

Usage, Software, Accounting, Spreadsheets, Spreadsheet software, Accounting software

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