What Are Taxable Fringe Benefits?

Sometimes, money isn't always enough to retain great employees. Sometime, it takes thinking outside the proverbial box of a salary. This is where fringe benefits can help keep those great employees. Offering these benefits is only half the battle. Knowing what is taxable and non-taxable is the other half.

Money Isn't the Only Way to Incentivize

Taxable fringe benefits are benefits that are subject to federal income tax, and in some cases, Social Security and Medicare taxes. These benefits are added to your total compensation and are typically included in your gross income for the year. The value of taxable fringe benefits is generally determined based on the fair market value of the benefit.

Examples of Taxable Fringe Benefits

1. Company Car for Personal Use: If your employer provides you with a company car that you can also use for personal reasons, the value of the personal use portion is considered a taxable fringe benefit. This value is calculated based on the IRS's standard mileage rate or the actual expenses incurred by your employer for the personal use of the car.
   

2. Group Term Life Insurance Coverage: If your employer provides you with group term life insurance coverage in excess of $50,000, the cost of coverage exceeding this limit is considered a taxable fringe benefit.
   

3. Health Club Memberships: If your employer pays for your membership to a health club or gym, the value of this benefit is generally taxable.
   

4. Non-Cash Awards: Non-cash awards, such as gift cards, are considered taxable fringe benefits and must be included in your income.
   

5. Housing Allowance: If your employer provides you with a housing allowance or pays for your housing, the value of this benefit is generally taxable unless it meets specific criteria for exclusion.
   

6. Meals and Lodging: If your employer provides you with meals or lodging, the value of these benefits is generally taxable unless they are provided for the convenience of your employer and on the employer's premises.
   

7. Employee Discounts: If you receive discounts on goods or services from your employer, the value of these discounts is generally taxable unless the discount is on the employer's products and does not exceed the employer's gross profit percentage.
   

Reporting Taxable Fringe Benefits

Taxable fringe benefits typically are reported on Form W-2 for your employees, which will include the value of these benefits in box 1 (wages, tips, and other compensation), box 3 (Social Security wages), and box 5 (Medicare wages and tips). Employees must report these amounts on Their tax return and pay any applicable taxes.

In conclusion, taxable fringe benefits are an important aspect of your employee's overall compensation package. It's essential to understand which benefits are taxable and how they impact your employee's taxes to avoid any surprises come tax time. If you have any questions about taxable fringe benefits or how to report them, consult with a tax professional look to the IRS for guidance, or contact us here at Payroll Ultra. Remember; It's Not Your Payroll, It's Your People.