Posted by Thomas G Kinsella, ATP

An Insight Into US Taxable Fringe Benefits

An Insight Into US Taxable Fringe Benefits

Fringe benefits can be defined as a type of payment offered for the rendering of services. An example is when the workers are served a meal at lunch during work.  

This, however, begs the common question: Are fringe benefits taxable? In general, one needs to pay tax on every fringe benefit provided, and it must reflect in the payment of the workers, except there is an exclusion from the law. 

By taxable, the fringe benefits are part of the wages and will reflect on the W2 form. Other forms of tax like Medicare Tax, Social Security tax, and Federal Income tax are withheld from the benefit value except if the employee already gets to the maximum limit specified by social security. 

Income Inputted 

Whatever value of any benefit that Uncle Sam believes should be considered income to calculate federal tax is what is referred to as imputed income. The value of any compensation that is non-monetary given to a worker like a benefit is called an income benefit. 

Fair Market Value 

There is a general rule used to estimate many fringe benefit values. With this rule, a fringe benefit value is the same as the fair market value. A fringe benefit's fair market value is the amount the employee will need to pay someone when there is a transaction to lease or buy the benefit. 

The fair market value is neither determined by the amount that the worker believes to be the value of the benefit nor the cost implication of providing such benefit. If the employee pays any amount, this will reduce the fair market value. For instance, if a worker gets fringe benefits taxable at a market value of $200 and pays $100 for it, the taxable fringe benefit becomes $100.

The taxable fringe benefit will typically reflect the employee's wage in the year that they got the benefit. For a non cash benefit, the value can be assumed to be paid on the general pay period – annually, quarterly, or semi-annually, as long as the benefits are considered to be paid not less frequently than yearly. 

For a fringe benefit that is non cash, the value provided during the past two months of the year or any time shorter with this period can be assumed to be paid in the following year. 

This is not to imply that the full benefits will be considered as paid during the final two months of the year and will be passed over to the following year. It is the value of the services provided in the last two months of the year that will be treated as paid in the next calendar year. 

Non-taxable Fringe Benefits

Here is comprehensive examples of fringe benefits that are exempt from taxes:

  • Health and accident benefits

  • Achievement awards: with an exemption of $1600 for plan awards that qualify, and $400 for non-qualified award

  • Assistance for adoption

  • Gym and athletic facilities

  • De-Minimis benefits (Minimal benefits): such as holiday gifts that are noncash, occasional use of the company’s stapler or copying machine for personal use, infrequent parties for workers and their guests. 

  • Care assistance for dependents: with an exemption of up to $5000 (half for a married couple filing separately)

  • Assistance for education: with an exemption of up to $5,250 for each benefit every year

  • Discount for employee

  • Stock options for employee

  • Cell phones provided for employee

  • Health Savings Accounts (HSAs)

  • Life insurance coverage for group term: with an exemption of up to $50,000

  • Meals

  • Reimbursement for moving expenses

  • Living on the business premises of the employer

  • Planning services for retirement

  • Commuting and transportation benefits: with an exemption of $250 for parking that qualifies, $130 for the use of a commuter highway motor vehicle, and $20 for bicycle commuting that qualifies

  • Benefits from the working condition: such as the use of an employer-provided automobile for business.

There is no federal income tax on excluded benefits, which removes the need for Medicare, Social Security, and federal unemployment taxes. As a result, they will not appear on the W2 form.



Thomas G Kinsella, ATP
Contact Member