State of California

  M E M O R A N D U M

  REFERENCE CODE:
  2004-015

  DATE:
  May 10, 2004

  TO:
  Personnel Officers
  Accounting Officers
  Budget Officers
  Travel and Relocations Liaisons
  Claims Coordinators

  FROM:
  Department of Personnel Administration
  Policy and Operations Division

  SUBJECT:
  Tax Withholding/Reporting Requirements - Fringe 
  Benefits/Employee Business Expenses

  CONTACT:
  Terrie Jordan, Statewide Coordinator
  Travel and Relocation Programs
  (916) 324-9377, CALNET 8-454-9377
  FAX: (916) 324-9393
  Email: Terriejordan@dpa.ca.gov


  Each State department's management is responsible for 
  compliance with tax withholding and reporting requirements 
  when paying fringe benefits and employee business 
  expenses (FB/EBE).  Reporting and withholding requirements 
  and procedures for FB/EBE are covered in the State 
  Controller's Payroll Procedures Manual (PPM), Section N.  
  This manual is online at www.sco.ca.gov, using the 
  path:  California Government, State Employees, State 
  Department/Campus Reference Data, Payroll Procedures 
  Manual, Section N, Items 120 through 176.
  
  FB/EBE include, but are not limited to, awards, aircraft 
  reimbursement, bicycle mileage, call-back mileage, commute 
  mileage, personal use of State vehicles, remote 
  headquarters mileage, standard mileage allowance, 
  electronic devices, value of State-owned housing, meals and 
  lodging on long-term travel, moving expense mileage, meals 
  and lodging per diem (i.e., meals for less than 24 hours of 
  travel and medical officer of the day), moving expenses, 
  relocation expenses, overtime meal compensation, tool 
  allowances, transportation subsidies, and uniform 
  allowances.  
  
  A full list of FB/EBE can be found in the PPM Section 120.  
  If these allowances/reimbursements are paid through the 
  payroll or the CalATERS system, tax reporting/withholding 
  is done automatically.  However, if paid through the manual 
  claim process, reporting is also a manual process directly 
  to the State Controller's Office and is subject to 
  mandatory time frames and procedures as specified in the 
  PPM.  TAX REPORTING IS NOT OPTIONAL FOR DEPARTMENTS AND IS 
  NOT DISCRETIONARY IN PROCESS OR TIME FRAME. 
  
  Through the March 2004 California State Auditor's Report 
  and reporting summaries from the State Controller's Office, 
  it has come to the Department of Personnel 
  Administration's (DPA) attention that some departments have 
  stopped reporting certain allowances or reimbursements, or 
  have opted not to report certain taxable benefits.  
  
  It is critical that each department review its 
  taxable/reportable allowances and reimbursements to assure 
  that full compliance with the reporting requirements are 
  met.  Failure to report and withhold when mandated by tax 
  law causes both the departments and the State to be out of 
  compliance.  This leaves the department, the employees, and 
  the State vulnerable to Franchise Tax Board and Internal 
  Revenue Service audits and various compliance remedies.  
  Remedies include, but are not limited to, tax assessments, 
  interest, and penalties.
  
  DPA, as the system-wide employer, wants to ensure that the 
  employee benefit and business expense plans it sponsors are 
  being properly administered by local employers (departments) 
  consistent with the applicable tax reporting requirements. 
  
  
  Bob Painter, Chief
  Policy and Operations Division