By completing a registered tax return preparer study, a tax professional learns about not only taxable income but also non-taxable forms of payment. First, all of the forms and expense deductions are addressed for calculating tax on every type of income. Then, the training covers the few ways that people can receive money and not incur income tax. Everyone with a tax preparer license must recognize these situations.
Most non-taxable sources of funds share common characteristics as reimbursement related to work. An RTRP study guide may not name all of them, but here are the most common arrangements.
Taxpayers will often mention money received from operating a carpool. Unlike a taxi service, this is not considered taxable income. Payments from fellow passengers to and from work are reimbursements of commuting costs. An RTRP course teaches that costs for commuting are not tax-deductible. So, no tax is payable on payments obtained from others to share those costs.
Plenty of avenues are available for someone to obtain funds from an employer without incurring income tax. One possibility is when employers pay for education of workers. In fact, these higher education reimbursements can be unrelated to a person's job. Employer payment for both undergraduate and graduate courses are available tax-free. When a company pays less than an inflation-adjusted IRS threshold per year for educational assistance, the recipient's tax preparer omits the payments from taxable income.
Another category of employer payment provided without income tax consequence is reimbursement for parking or public transportation. For example, businesses can give their workers discount fare cards for public transportation or pay for toll passes. For workers who drive to work, companies can provide access to free parking. The IRS considers all of these benefits as minimal non-taxable events whenever the value is no more than $230 per month.
In addition to pre-tax employer payments for health insurance, group term life insurance also comes tax-free. Companies can pay for up to $50,000 of life insurance coverage for employees. The business deducts the cost of the premiums, but workers are not taxed on the money. Each employee controls naming a beneficiary and obtains the insurance for no cost.
A particularly common non-taxable employee benefit is flexible spending accounts. Under these plans, employers make contributions to an account for each employee. Workers are then allowed to use money in their accounts to purchase various types of benefits, such as disability insurance, life insurance, accident insurance, and out-of-pocket medical reimbursements. Money in an employee's flexible spending account used for these purchases is not taxable income.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.