Fringe Benefits are confusing. What exactly is a fringe benefit? Are they all taxable? Are they the same from company to company? Fringe benefits are the large range of work perks you enjoy in addition to your salary. For employees and employers in the 21st-century, fringe benefits are becoming better incentives than just salary-based compensation alone. Let’s break down some of the most frequently asked questions to better understand the world of fringe benefits– and why they are so crucial.
The short answer: a lot. Any benefit that your company provides– from a company car and gym memberships to that office fridge full of La Croix– can qualify as a fringe benefit. Fringe benefits are any type of company ‘perk’ that is given to an employee apart from their pay. The longer answer is that, more casually, standard benefits include health and dental insurance as well as vacation time or flexible work arrangements. Fringe benefits are seen more as the added perks to sweeten the deal, and they can vary immensely from company to company.
Depending on your employer, fringe benefits packages can include any variety of perks from moving expenses, to employer-provided cell phones, to happy hour drinks in the office on Fridays. Large corporations tend to have more fringe benefits to offer though small businesses are increasingly aware of the importance these packages play in attracting and maintaining employees. Typically a fringe benefits package will cover insurance, vacation, transportation discounts, and any perk that would make working at that company seem more attractive.
For example, Moz (a Seatle-based software company) offers a fringe benefit package of:
Whereas the Mountain View biotechnology company 23andMe’s package includes:
Most companies these days include a list of potential fringe benefits under the hiring section of their websites. While some of these perks are more financially accessible to large corporations, policies allowing dogs at work or office snacks are manageable to smaller businesses as well!
Yes and no. Fringe benefits by definition fall outside of an employee’s salary and in terms of taxation, most fringe benefits are exempt from being taxable wages. Of course there are limits to the amount exempt, so some fringe benefits may be considered taxable wages and therefore must be reported as such.
Health and accident benefits, for example, are tax-free and are not considered wages. Similarly, education assistance programs or Master-level courses that an employee takes are not considered wages, unless the amount exceeds a $5,250 per year cap. For a full breakdown of what is considered a taxable wage or not take a look at the IRS’s Guide to Fringe Benefits.
Commuter benefits, for the most part, qualify for exemptions from federal income and payroll taxes as long as they qualify as a “transportation fringe benefit.” For example, a monthly transit pass, qualified parking, or transportation in a commuter highway vehicle would all be tax-free. The rule of thumb to keep in mind is that (as of 2018) up to $260 per month, “for combined commuter highway vehicle transportation and transit passes” provided to an employee may be excluded (Publication 15-B of the IRS). Take a look at our article on commuter benefits for more details.
If the gym membership is for an in-company facility, it is considered a tax exemption. This means the gym must be a direct part of your business or leased/operated by your company with your employees being the majority of its users for it to qualify for tax exemption. Otherwise, gym memberships are taxable.
According to the IRS, company-sponsored life insurance, otherwise known as group-term life insurance, is exempt from taxes if it meets the following conditions:
In summary, fringe benefits are some of those reasons we love doing what we do—the added cherries on top of our salary sundaes. And when you align those fringe benefits with your company’s core values, it shows your commitment to those values and allows employees to be proud of their work.