A Quick Guide to Fringe Benefits

A Quick Guide to Fringe Benefits

A fringe benefit is an additional benefit supplementing an employee’s salary. When any type of service is performed for you, you are classified as the recipient of a benefit. On the other hand, when you perform a service for another party, you are classified at the provider of a benefit. Fringe benefits are a complex concept that often leaves employers and employees guessing. The most frequent questions are in regards to taxes. Any fringe benefit provided to a recipient is included in the recipient’s pay, with some exclusions. Below, we have compiled a list of the twenty different types of fringe benefits and the how they are taxed:

 

  • Accident and Health Benefits:
    • Federal Tax: Exempt unless long-term care is provided under flexible spending
    • Social Security and Medicare Tax: Exempt except for certain payments made to S- corporation employees who are 2% shareholders
    • Federal Unemployment Tax: Exempt
  • Achievement Awards:
    • Exempt up to $1,600 for qualified award plans and up to $400 for nonqualified awards
  • Adoption Assistance:
    • Federal Tax: Exempt
    • Social Security and Medicare Tax: Taxable
    • Federal Unemployment Tax: Taxable
  • Athletic Facilities:
    • Exempt
  • Minimal Benefits:
    • Exempt
  • Dependent Care Assistance:
    • Exempt up to $5,000
  • Educational Assistance:
    • Exempt up to $5,250 per year
  • Employee Discounts:
    • Exempt, certain limits apply
  • Employee Stock Options:
    • Exempt with certain exclusions regarding Incentive Stock Options, Employee Stock Purchase Plan Options, and Non-statutory Stock Options
  • Employer-Provided Cell Phone:
    • Exempt if used for non-compensatory business purpose
  • Group-Term Life Insurance:
    • Federal Income Tax: Exempt
    • Social Security and Medicare Tax: Exempt up to $50,000 of coverage
    • Federal Unemployment Tax: Exempt
  • Health Savings Accounts:
    • Exempt for qualified individuals with certain contribution limits applicable
  • Lodging on your Business Premises:
    • Exempt if supplied for your convenience as a condition of your employment
  • Meals:
    • Exempt if made available on your business premises for convenience or if benefit is minimal
  • Moving Expense Reimbursements:
    • Exempt if when the employee paid the expenses they were deductible
  • No-Additional-Cost Services:
    • Exempt
  • Retirement Planning Services:
    • Exempt
  • Transportation (Commuting) Benefits:
    • Commuter Highway Vehicle/Transit Passes: Exempt up to $130 per month
    • Qualified Parking: Exempt up to $250 per month
    • Qualified Bicycle Commuting Reimbursement: Exempt up to $20 per month
  • Tuition Reduction:
    • Exempt for undergraduate education, and graduate education only if the employee is participating in research or teaching activities
  • Working Condition Benefits:
    • Exempt

While fringe benefits can be a complex issue, this quick guide will help clarify any questions you and your organization may have regarding fringe benefits. For more information on fringe benefits, the types of benefits that can be offered, and their respective taxability, visit: http://www.irs.gov/publications/p15b/ar02.html.

 

This DATIS Blog was written by Megan Marone, DATIS, on July 1, 2015 and may not be re-posted without permission

Written by MJ Craig