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 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%
$90K |
| 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%
$90K |
| 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%
$90K |
| 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%
$90K |
| Employee service discounts |
Not more than 20% of the price charged nonemployee customers. HCE
restriction applies only if not available to all employees. |
5%
$90K |
| 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%
$90K |
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. |
|
*Fringe benefits are taxable for ineligible employees. Ineligible employees
may include:
* 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.)
