Tax Planning

More Tax-Free Benefits

Tax-free benefits help companies attract and retain talented employees. Recently enacted tax law changes, which take effect in 2002, provide for additional tax-free benefits that are sure to please your employees.

Educational Assistance
An employer can provide as much as $5,250 of tax-free educational assistance (such as tuition reimbursement) per employee, per year. This tax treatment was recently extended to cover graduate courses as well as undergraduate, effective for courses starting after 2001.

Note that employers can also provide unlimited "other" educational assistance tax free when employees take courses to maintain or improve their job skills. Here, the employer's educational assistance would be deemed to be a "working condition fringe benefit."

Child Care Assistance
Beginning in 2002, a new tax credit for employer-sponsored child care assistance will be available to businesses. Such dependent care services, valued up to $5,000 per participating employee, would be a tax-free fringe benefit to the employee.

The business may claim a credit for 25% of the cost of providing qualified child care facilities or services for employees' children and 10% of qualified expenses for referral and resource services. The maximum annual credit is $150,000.

Retirement Planning
Beginning in 2002, employers may provide retirement planning assistance to employees and their spouses as a tax-free fringe benefit. Such assistance must generally be provided to employees on a nondiscriminatory basis, although it may be limited to employees who are nearing retirement age.

Tax-free planning assistance need not be limited to information about the employer's retirement plan. It may also cover how the employer's plan fits into the employees' overall retirement income plans. However, some employer-provided services that may be related to retirement planning - such as tax preparation, accounting, and legal or brokerage services - are not tax free to employees.

Cost Versus Benefit
Businesses may want to reevaluate their fringe benefit offerings in light of the new tax law. The options may be complex, involving both tax and non-tax considerations. A professional cost-benefit analysis can help business owners make appropriate decisions.

For more information, please give us a call.

For More Information Contact:

Bucheri McCarty & Metz LLP
2366 W. Boulevard
P.O. Box 2147
Kokomo, IN 46904-2147

Telephone: (765) 236-2300
FAX: (765) 236-2333
Internet: info@bmmcpas.com