FUTA Fringe Benefits Excluded from Income
All fringe benefits are taxable to the recipient based on the fair market value, and the provider of the benefit is responsible for withholding federal income and FICA taxes (social security and Medicare) from the recipient’s cash compensation, and for paying FUTA taxes. The fair market value of the fringe benefit may be reduced, however, by the following amounts:
* Any amount that the law excludes from compensation; and
* Any amount that the recipient pays for the benefit.
The following chart is a summary of the fringe benefit amounts that can be excluded from compensation. This chart is based on Internal Revenue Service Publication 15-B, Employer's Tax Guide to Fringe Benefits.
|Fringe Benefit||Description/Requirements for Exclusion||Ineligible Employees*|
|Accident & health benefits (3rd Party)||Accident & health plans. Does not include insurance for long-term care benefits if plan is part of a cafeteria plan. Long-term care insurance that is part of a flexible spending arrangement must be included in employee’s income.||S2%|
|Accident & health benefits (Self-insured)||Self-insured plans that do not favor highly compensated employees. Includes medical care reimbursement plans.||Top 5 Ofcr
10%, top 25%
|Achievement awards||Length of service or safety achievement awards only. Cannot include cash or intangible property such as vacations, meals, lodging, tickets, stocks, bonds, or securities. Limited to a value of $1,600 per year.||S2%
|Adoption assistance||Excluded only from FIT. Subject to FICA and FUTA taxes. All payments must be reported on Form W-2 in Box 12 with Code “T”.||S2%|
|Athletic facilities||Facility must be on business premises and is for exclusive use of employees, their spouses, and dependent children.|
|Copy machine use||De minimus fringe. 85% of copier use must be for business purposes.|
|Dependent care assistance||$5,000 per year. Value of all payments must be reported in Box 10 of Form W-2. Excess payments must be included in Boxes 1, 3, and 5.||5%
|Dependent life insurance||De minimus fringe. Insurance on spouse or dependent if face value is less than $2,000. If face value is greater than $2,000 for any dependent, then the entire benefit is subject to FIT (but not FITW) and FICA taxes.|
|Educational assistance||(Not work related) $5,250 per year based on date course begins. Graduate courses included. Employer must have a qualified plan. Value of the benefit is based on when a course begins, not when the benefit is paid.||5%
|Educational assistance||(Work related) Course must be related to the employee’s current job and must help maintain or improve the knowledge or skills required for that job. Reimbursements should be treated as part of an accountable expense reimbursement plan.|
|Employee merchandise discounts||Not more than the gross profit percentage times the price charged to nonemployee customers. HCE restriction applies only if not available to all employees.||5%
|Employee service discounts||Not more than 20% of the price charged nonemployee customers. HCE restriction applies only if not available to all employees.||5%
|Group-term life insurance||$50,000 face value excluded from wages. Excess value subject to FIT and FICA taxes, but not subject to FUTA. Value not subject to federal income tax withholding.||S2%|
|Holiday gifts||De minimus fringe. Other than cash with low FMV.|
|Lodging||Can be excluded only if (1) it is furnished on business premises, (2) it is furnished for the employer’s convenience, and (3) the employee must accept it as a condition of employment.||S2%|
|Meals (De Minimus)||Meal or meal money that has so little value that accounting for it would be unreasonable. Includes such things as coffee, doughnuts, soft drinks, and occasional meals that enable an employee to work overtime.|
|Meals on business premises||Meals that are furnished on the business premises and are furnished for the employer’s convenience.||S2%|
|Moving expenses||Must be deductible expenses. (See Publication 521) Non-qualified moving expenses subject to FIT and FICA taxes, but not FUTA.||S2%|
|No-additional-cost services||Services that are offered to customers in the ordinary course of business that can be offered to employees without incurring any substantial additional costs. Includes excess capacity services, such as airline, bus, or train tickets; hotel rooms; or telephone services provided free or at a reduced price to employees working in those lines of business.||5%
Parties & picnics
|De minimus fringe.Occasional parties & picnics for employees and their guests.|
|Tickets||De minimus fringe. Occasional tickets for entertainment or sporting events.|
|Transportation benefits||Commuter highway vehicle or transit passes - $100 per month. Qualified parking - $190 per month. May be provided as an additional benefit or by employee contributions that are made on a pre-tax basis.||S2%|
|Tuition reduction||An educational institution can exclude tuition reductions for qualified employees, dependents, and those retired on disability for undergraduate education. Teaching or research assistants can receive tuition reductions for graduate education.|
|Typing||De minimus fringe. Occasional typing of personal letters by a company secretary.|
|Working condition benefits||Property and services provided to an employee so that the employee can perform his or her job.|
* S2% — Employees of S-corporations who own 2% or more of stock.
* 10% — Employees who own 10% or more of the employer's stock or capital (if not a corporation).
* 5% — Employees who own 5% or more of the employer's stock or capital (if not a corporation).
* $90K — Highly compensated employees who received more than $90,000 in compensation from the employer in the preceding year. (An employer can exclude any employee who meets this criterion who is not in the top 20% of employees.)
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