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Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2439
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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Question 1: Alex Oberstar, a cook in the Lagomarsino Company

Resolved Question:

Question 1: Alex Oberstar, a cook in the Lagomarsino Company cafeteria, is furnished two meals each day during his eight-hour shift. Oberstar's duties require him to have his meals on the company's premises. Should the cash value of Oberstar's meals be included as part of his taxable wages? Explain.
Question 4: Rena Reynolds, one of your firm's workers, has just come into the payroll department and says to you: "I'm thinking of amending my Form W-4 so that an additional $10 is withheld each week. That way I will get a fat refund next year. What do you think of my idea?" How would you reply to Reynolds?
Submitted: 5 years ago.
Category: Tax
Expert:  Anne replied 5 years ago.

Thank you for using justanswer

Question 1-Working condition fringe benefits include property or services that, if the employee had paid for the property or service, the cost would have been deductible on the employee’s individual income tax return. Therefore, if the cost of an item is deductible by an employee as a business expense, it may be excludable from the employee’s wages as a working condition fringe benefit if provided by the employer. IRC §132(d)

Since the cost of the meals would not be deductible if Alex purchased them ,then the cost of the meals provided is a taxable fringe benefit.

Question 4-Having the additional $10 withheld will give her a better refund, however, if the company has ANY type of deferred comp plan, such as a 401K, I would advise her to put the money there. If the company does not have any deferred comp plan, I'd suggest she might want to look into an IRA. By making her income $520 less, she might find that she is eligible for certain credit, such as the Saver's Credit (found on page 38 of 2011 Instruction 1040 Instructions for Form 1040, U.S. Individual Income Tax Return, and Schedules A, C, D, E, F, J, M, and SE) or a larger Earned Income Credit if she meets the qualifications. See below:

EITC Home Page

In the end, the choice is hers, and most payroll people don't know this information, so I would advocate calling her tax person first.

However, if you just need the basic answer from a payroll point of view, then Rena's thought process is that she will get more back by paying more in is correct

I hope this helps.
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