Baylor University
Tax & Compliance Accounting
Financial Services

Other Section 132 Fringe Benefits

Qualified Employee Discount

A qualified employee discount is any discount on qualified property or services provided by the employer. Qualified property or services is any property or services offered for sale to customers in the ordinary course of the line of business in which the employee performs substantial services.For discount of services, the exclusion cannot exceed 20% of the price offered primarily to customers. For products or merchandise, the discount cannot exceed the employer's gross profit percentage multiplied by the price at which property is offered primarily to customers for property in the ordinary line of the university's business. The gross profit percentage is equal to the total sales of the property sold minus the total cost of the property sold divided by the total sales. If the discount does exceed this amount, then only the excess is included in the employee's gross income.

Example of Qualified Property The campus bookstore had total sales of $600,000 and the total cost of its merchandise was $300,000. The gross profit percentage would be $600,000-$300,000=$300,000/$600,000 or 50%. Any employee discount that did not exceed 50% of the sale price to customers could be excluded from the employee's gross income.

Two examples of qualified employee discounts are recreational facilities or discounted tickets to athletic and entertainment events. Recreational facilities provided by the University can include athletic facilities, the Student Life Center, golf courses, the marina, etc. There are typcially a few options for the exclusion of such use from the employee's gross income: 1) as a special athletic facility fringe (discussed below); 2) as a no-additional cost service fringe benefit; or 3) as a qualified employee discount.

If a ticket is provided at a discount, the qualified employee discount rule for services may apply. Under this rule, the gross income of the employee does not include the discount to the extent it does not exceed 20% of the price at which the University provides the ticket to nonemployee customers. A complementary or discounted ticket may also be excluded as a no-additional cost service fringe benefit, or as a working condition fringe, or as a de minimis fringe benefit. (Top)


Eating/Athletic Facilities Fringes

An eating facility fringe is the value of meals provided by the university to employees at a university-operated eating facility if the revenue from the facility equals or is greater than the direct operating costs of the facility. The facility must be owned or leased by the university, operated by the university (or contracted with a 3rd party to operate), located on or near the business premises of the university and the meals must be provided during, immediately after or immediately before the employee's workday. The direct operating costs included in this calculation are the cost of food and drink, the cost of labor primarily performed on the premises, and the amount paid to the 3rd party operator. The direct operating costs may be determined on an individual dining hall basis or in the aggregate.

An on-premises athletic facility fringe is the value of any on-premises athletic facility provided by the university which is on Baylor University premises, is operated by Baylor University and substantially all of the use of which during the calendar year is by employees, their spouses and their dependent children. This does not apply to any athletic facility if the facility is made available to the general public through the sale of memberships or facility rental. This exclusion also does not apply to 3rd party health club or country club memberships.

Recreational facilities provided by the University can include athletic facilities, the Student Life Center, golf courses, the marina, etc. There are typcially a few options for the exclusion of such use from the employee's gross income: 1) as a special athletic facility fringe; 2) as a no-additional cost service fringe benefit; or 3)as a qualified employee discount (discussed above). (Top)


Qualified Transportation Fringes

A qualified transportation fringe includes three items:

  • The use of a commuter highway vehicle, which is a vehicle that seats at least 6 and is used at least 80% for transportation between the employee's residence and the university, limited to $105 per month in total with the transit pass.
  • Any transit passes allowing the holder to use mass transit facilities or ride in a for-hire commuter vehicle, limited to $105 per month in combination with the use of the commuter highway vehicle.
  • Qualified parking, which is parking at or near the university premises or at a location for the use of mass transit facilities, limited to $200 per month.
The employee is allowed to choose between receiving cash or receiving the qualified transportation benefit without being taxed on the fringe benefit, as long as the alternative chosen stays within the dollar limitations. (Top)