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FAQs for government entities regarding meal and vehicle expenses

 

 

These frequently asked questions and answers are provided for general information only and should not be cited as any type of legal authority. They are designed to provide the user with information required to respond to general inquiries. Due to the uniqueness and complexities of Federal tax law, it is imperative to ensure a full understanding of the specific question presented, and to perform the requisite research to ensure a correct response is provided.

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A county pays meal money allowances, including lunch and dinner, for its ballot clerks. They are not required to eat their meals on the premises and usually go to a local restaurant. Are these payments taxable?

The facts indicate that the allowances are taxable. Section 62(a) of the Code provides that gross income means all income from whatever source derived, including fringe benefits. There is no exclusion that applies to a fringe benefit of this type. There is no indication that the meals are provided on the business premises for the convenience of the employer. Cash cannot be excludable, except as a de minimis benefit under very limited circumstances as outlined in Regulation 1.132-6(d)(2). Regular meal money does not qualify for the exclusion. The exclusion for meal money must meet three criteria: it is provided (1) on an occasional basis, (2) because overtime work necessitates the extension of the employee's normal work schedule, and (3) to enable the employee to work overtime.

The meal money in this case is provided on a routine basis and is not excludable from income.

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A town has a public safety director who is a retired police chief. He carries a firearm and has arrest powers. He drives an unmarked vehicle and commutes in this vehicle from home to the office. Is he entitled to exclude the value of the use of the car from his income?

The value of a "qualified nonpersonal use vehicle" can be excluded from income as a working condition fringe if the use of the vehicle conforms to the requirements of paragraphs (k)(3) through (7) of section 1.274-5T of the regulations. An employee does not have to substantiate the business use of a qualified nonpersonal use vehicle in order to exclude its value from wages.

A qualified nonpersonal use vehicle means any vehicle that is not likely to be used more than a minimal amount for personal purposes. Common examples include a fire engine, a clearly marked police or fire vehicle, a public safety officer vehicle, a flatbed truck, school bus, ambulance, etc. There are limited circumstances under which an unmarked police car qualifies as a nonpersonal use vehicle. 

First, the driver must be a "law enforcement officer." A law enforcement officer must satisfy all of the following requirements. He or she must be a full-time employee of a governmental unit that is responsible for preventing or investigating crimes involving injury to persons or property (including catching or detaining persons for these crimes). The officer must be authorized by law to carry firearms, execute search warrants, and to make arrests. The officer must regularly carry firearms, except when it is not possible to do so because of the requirements of undercover work. A “public safety director,” or any employee, regardless of title, must meet these tests to qualify under this exclusion.

Second, any personal use of the vehicle must be authorized by the government agency or department that owns or leases the vehicle and employs the officer, and, third, the use must be incident to law-enforcement functions, such as being able to report directly from home to a stakeout or surveillance site, or to an emergency situation. Use of an unmarked vehicle for vacation or recreation trips cannot qualify as an authorized use.

Whether the individual's use of the vehicle is authorized by the governmental agency which employs him or is incident to law-enforcement functions depends on the facts and circumstances. If the individual is allowed to use the vehicle as a courtesy and for commuting purposes, it does not qualify as a nonpersonal use vehicle, and the commuting value is income subject to FICA and income tax withholding.

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For purposes of defining a qualified nonpersonal use vehicle, what qualifies as a clearly marked police or fire vehicle?

A police, fire, or public safety vehicle is clearly marked if it has insignia or words which make it clear that it is a police, fire, or public safety vehicle. A marking on a license plate is not a clear marking for this purpose.

According to the regulations, the exclusion for a clearly marked police, fire, or public safety vehicle applies only to a vehicle that is required to be used for commuting by a police officer,  firefighter, or public safety officer who, when not on a regular shift, is on call at all times.

Other than commuting, personal use of the vehicle, outside the limit of the police officer's arrest powers or the obligation of a firefighter or public safety officer to respond to an emergency, must be prohibited by the governmental unit.

A public safety officer is an individual serving a public agency in an official capacity, with or without compensation, as a law enforcement officer, as described above, or a firefighter, chaplain, or member of a rescue squad or ambulance crew.

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A town provides cars that its officials and other employees use during the workday for business purposes. These employees also use the cars for commuting to and from work. Is the use of these vehicles for commuting taxable income to the employees?

The value of noncash fringe benefits is taxable income to the recipient. Thus the commuting value of a vehicle owned or leased by a public entity usually represents taxable income to the employee.

One exception is for the qualified nonpersonal use vehicle, described above. Thus, for example, when a law enforcement officer drives a clearly marked police car to his or her residence when off duty and otherwise satisfies the requirements described above, the commuting value of that vehicle is not income to the employee.

There are several ways to value the commuting use of a car for income and FICA tax purposes; these are discussed in Publication 15-B, Employer's Tax Guide to Fringe Benefits.

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Can an appointed executive or official have a portion of his salary paid to him as reimbursement for mileage, phone calls, etc., and the balance as salary subject to FICA and withholding?

To be excluded from wages, reimbursements must be for actual documented expenses under an accountable plan, i.e., a reimbursement or other expense allowance arrangement set up by the employer. Code section 62(c) and section 1.62-2.

To qualify as a reimbursement or other expense allowance arrangement, the arrangement must require (1) that the employee substantiate all expenses to the employer, and (2) that the employee return any amount in excess of substantiated expenses. An expense should be substantiated within 60 days after it is paid. If the individual receives an advance, any money not accounted for must be returned within 120 days. See section 1.62-2(g) of the Income Tax Regulations, defining a "reasonable period" for purpose of this section.

To substantiate the expense, the employee must document the amount, time and place of travel, the business purpose, and the business relationship to the taxpayer of the people involved if the expense is for entertainment. Miscellaneous expenses must also be documented.  

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A fire chief uses his own pickup truck for work. He accounts for the business use of his truck and is reimbursed for his mileage. He sometimes travels to and from the fire station outside of his regular work schedule. Is this considered commuting and would reimbursement be taxable?

This travel is commuting and is a personal expense. It does not matter whether the fire chief is commuting outside of his regular work schedule. Any reimbursement for commuting in his own vehicle is taxable to the employee.

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Page Last Reviewed or Updated: 28-Jan-2014