Wages, or benefits? Taxable, or non-taxable? Business owners may be asking themselves these questions when they hire a WECA apprentice – how do I account for the amounts I pay directly to WECA? Likewise, new apprentices may be asking themselves, where are those contributions going, and how do I account for them for tax purposes?
Before these questions can be answered, one needs to understand how a welfare benefit plan works.
According to the Department of Labor, a welfare benefit plan, also referred to as an employee welfare benefit plan is any plan, fund, or program established or maintained by an employer or an employee organization, or both, for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or by other means, benefits. Both the WECA Health and Welfare Trust and the WECA Apprenticeship and Training Fund are considered welfare benefit plans under this definition. While the Department of Labor is concerned with enforcing participant protections for welfare benefit plans, the Internal Revenue Service is concerned with the tax treatment of employers and participants in fringe benefit plans. To encourage employers to provide certain benefits to employees, the Internal Revenue Code provides special tax treatment to fringe benefit plans, under Section 132(a). This means that from the employer’s perspective, payments made on behalf of employees into these funds are an employee benefit expense. If the payments meet the “ordinary and necessary” criteria under Internal Revenue Code Section 162, they are a deductible business expense on the organization’s tax return.
Are they taxable to the apprentice? Generally speaking, no. Amounts paid on behalf of employees for business purposes are considered a working condition fringe benefit, which is a non-taxable fringe benefit. This means that on the employee side, contributions by the employer to the WECA Health and Welfare Trust and the WECA Apprenticeship and Training Fund are not taxable to the employee, neither as wages nor as a taxable benefit, according to Internal Revenue Code Section 132(d). Other examples of working condition fringe benefits include business related magazine subscriptions, professional dues, business use of an employer provided cell phone, job related education, business travel and entertainment, business use of a company car, and under certain circumstances nondeductible club dues and spousal travel.
Because these amounts are non-taxable to the employee, the amounts paid on behalf of employees are not required to be included on their paystub. Employers may decide to include this supplemental data as information on the employee paystubs, however, that may add confusion when the time comes for the apprentice to file their individual income tax return.
As is always the case when it comes to tax law, please give us a call for information specific to your exact situation. We’re here to help you relax!