Certain fringe benefits are specifically excluded for FICA, FUTA, and federal income tax withholding purposes:
(1) no additional cost services,
(2) qualified employee discounts,
(3) working condition fringe benefits,
(4) de minimis fringe benefits,
(5) employer operated athletic facilities,
(6) qualified tuition reductions for employees of educational institutions,
(7) qualified employer provided transportation benefits, and
(8) qualified employer reimbursed moving expenses.
All other fringe benefits are subject to income and employment taxes on the amount equal to the excess of their fair market value over any amount paid by the employee for the benefits.
Employers may elect to treat fringe benefits as paid on a pay period, quarterly, semi-annually, annual, or other basis. The benefits must, however, be treated as paid no less frequently than annually.
Employers must determine the actual value of taxable non-cash fringe benefits provided in a calendar year by January 31 of the following year.
The value of some of the benefits actually provided in the last two months of the previous calendar year may be treated as provided in the subsequent calendar year together with the value of the benefits provided in the first ten months of that subsequent calendar year.
The employer can add the value of fringe benefits to regular wages for a payroll period and figure the federal withholding taxes on the total or can withhold income tax on the value of the fringe benefits at the flat 25% rate applicable to supplemental wages.
The value of the use of an employer provided car might be excluded from an employee's wages if the car can be considered a working condition fringe benefit. An employer may elect not to withhold on the value of the personal use of a car that is includible in the employee's income if the employer provides advance written notice of the election not to withhold by January 31 of the year to which the election applies or within thirty days after the date the employer first provided the car for the employee. The election to not withhold applies only to federal income tax; FICA taxes must be withheld regardless of the election.
An employer must deposit federal taxes withheld from fringe benefits according to the general deposit rules for that tax period. The value of fringe benefits may be reasonably estimated for purposes of making timely deposits.
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