SABC Newsletter

IRS RELEASES 2001IRS FORM 2441 AND 1040A FOR PARTICIPANTS WITH DEPENDENT CARE EXPENSES.

The IRS has released the 2001 Form 2441 ("Child and Dependent Care Expenses") and its accompanying instructions. Form 2441 is a dual purpose form: it is filed with Form 1040 to claim the dependent care tax credit available under Code Section 21, and it is used by the taxpayer to explain to the IRS why the amounts in Box 10 of the W-2 (the value of dependent care through the Cafeteria plan) are not taxable. Form 1040A (Schedule 2) is the abbreviated version of Form 2441 used by taxpayers that file the short form 1040A. It has also been updated.

The substance of Forms 2441 and 1040A (Schedule 2) are unchanged from last year. The most notable change in the newly released items is that the instructions for Form 2441 now clarify that the earned income of the taxpayer or taxpayer's spouse does not include "any amount received as a pension or annuity from a nonqualified deferred compensation plan or a [Code] section 457 plan."

MILEAGE ALLOWANCE INCREASED FOR TRANSPORTATION TO OBTAIN MEDICAL CARE

The IRS has announced that the standard mileage rate for use of an automobile to obtain medical care, as described in Code Section 213 will increase from $0.12 to $0.13 per mile for 2002.

Employees claiming mileage through their Unreimbursed Medical account must write down their odometer reading before they leave home for medical care and their mileage when they return home. A receipt from the medical provider must accompany the claim.

IRS CREATES SAFE HARBOR FROM CONSTRUCTIVE RECEIPT FOR EMPLOYEE DONATING LEAVE TO CHARITABLE ORGANIZATIONS

Numerous companies have recently considered adopting programs under which employees can exchange vacation, sick or personal leave for employer contributions to charitable organizations. Yet under IRS regulations, these leave-based donation programs raise concerns that the amounts paid to the charity would be included in the donating employee's income. (Treas. Reg. Sec. 1.61-2(c) states that where there is an agreement under which services are rendered to a person for the benefit of charitable organization, and an amount for those services is paid to the organization, the payment constitutes income to the person providing the services-here, the employee.) In addition, an employee is considered to "constructively receive" income that is currently available to him or her unless the receipt is subject to substantial restrictions.

In this announcement, the IRS creates a temporary safe harbor from the constructive receipt problem for the leave donation programs described above. Consequently, payments made by an employer to an employee's vacation, sick or personal leave, will not be included in an employee's gross income or wages (and therefore need not be reflected in Boxes 1, 3 or 5 of Form W-2). In addition, employers can deduct their payments as trade or business expenses instead of as charitable contributions. The employer must, however, pay the charitable organizations before January 1, 2003. There can be no double dipping. Employees cannot deduct the value of the donated leave on their income tax returns.

IN OBSERVANCE OF THE HOLIDAYS WE WILL BE CLOSED DECEMBER 24TH, 25TH & 31, AS WELL AS NEW YEARS DAY. WE WISH YOU AND YOUR FAMILY THE HAPPIEST OF HOLIDAYS!