Agenda Packets - 1985/02/04 - Laserfiche WebLink

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PIcVV gdx^ o g'UM-5 11 on benefits has • ^m � hA fr%*g cnrtrt impact on cities .��'aa��a�d+a ava ►jwo& v a by Laurie Micciche The Intemal Revenue Service last Wednesday held a press conference to CHANGE IN announce the promulgation of temporary CCMMUNI TY CONf?fT M regulations to give employers and em- ployees guidance on how to calculate in- come tax liability on certain fringe bene- !y fits; such as personal use of municipal "' IR vehicles —including police cruisers and other types of autus. The new rules detail various means by which to calculate the "fair market value" of taxable noncash benefits, such as the personal use by a municipal employee of+ - -- a city -owned vehicle. Under the regula lions, cities must conform to a timetable .glow.._.... ...... for withholding 20 percent of the value of - an employee s taxable non -cash benefits. .,w..- r The regulations, which are auttmtati- cally in effect from the iiioment of an- rr�rrccrment r rat be rfur> nr mrYii- +166 eesrrkw itireeCnrT4lae iie�ItBrves suroey'firr*np Wide A* tied as a result of public comment. Among the specific requirements with pgey which cities must conform aces a pro-rata 1 ne 9 Congms` L rule for company and municipal cars used - by employees, The amount of taxable �, pal program. The income attributed to an employee is di- by Frank Shafroth EI sider the reauth rectly related to the proportion of car n revenue sharing, mileage spent in personal travel. The IRS The 99th Congress started work a day ment block grants proposes a safe harbor rule whereby the before it was officially sworn in last opment action I regulations establish a "fair market Thursday as the Senate Finance Commit- municipal wastew value" for the auto in question, determine tee held hearings on the need for federal construction grant! an annual value (30% in the first year), deficit reductions. grants, and highwi and then derives the taxable income to The Finance Committee hearing tation programs. the employee by taking the percentage of marked the last day Kansas' Sen. Robert In the first sessic personal use. Dole (R) chaired the Senate tax panel again on deficits, The rules establish a separate safe har- before officially assuming his new status and economicdeve bor rule for commuting vehicles—i.e.: as Senate Majority Leader. The hearing to reduce the defi where police officers are entlded to take demonstrated that deficit reduction will rate of poverty. 11 their cruisers home, but are not permitted remain Dole's top priority, and that Dole sider whether to n any personal use. In these situations, if a will keep the tax code in mind as a means the municipal wa car is used for these commuting purposes to deal with deficits, grant program to e at least 15 days a year, then the IRS City leaders will watch this new Con- with federal envi. imputes a benefit the equivalent of $4 a gress confront virtually every key munici- day to the employee. In other words, if a city employee uses a city vehicle for com- The deductibility Of 'sl muting purposes only 200 days a year, the city should impute additional income This is the second to that employee of $4 X 200 days a by Bob Dilger the deductibility ofsi $800, The dty must then withhold 20% -- federal taxable into of that $800, or $160 in quarterly with- Depeniing on how one views the from a more length, holdings, deductibility of state and local taxes from later this year by NI The rules instruct employers to calcu- taxable federal income, it either reduces late fringe -benefit taxable income quar- federal income tax burdens or reduces terly for withholding purposes. Within 30 state and local tax burdens. half of his state and days of the end of a calendar quarter, the For example, a taxpayer in the 50 per- cutting his state an employer must withhold the flat 20 per- cent federaf marginal income tax bracket half. Similarly, taxr cent of the value of the taxable fringe with a $100,000 federal income tax ob- cent federal income benefit earned during the previous quar- ligation and a $10,000 state and local tax deductibility as a mi ter. This withholding requirement be- obligation can view deductibility as a way and local tax border comes mandatory for the second calendar to reduce his federal income tax obliga- No matter how to quarter of 1985 (June 30, 1985), so that Hon by $5,000 (50 percent of his state and ibility, either as a fee( cities must begin compliance steps as of local lax obligation). Or, a taxpayer in the or as a state and April 1, 1985 in order to insure meeting same economic circumstances can view elimination of dedu 'he June 30 withholding requirement. 0 deductibility as a federal rebate equal to more difficult for st