Are Fringe Benefits Taxable?

From paid vacations to company laptops, fringe benefits exist to reward employees for their hard work on the job and make your organization more attractive to job candidates. But as an employer, it’s important to understand how to provide these benefits legally. Here’s what you should know about providing and taxing fringe benefits in your workplace.

What are fringe benefits?

Fringe benefits are bonuses and work perks that are given in addition to an employee’s compensation. Many types of benefits can fall under this umbrella term, and the most common examples involve health, disability, and life insurance. They can also involve physical property such as laptops, phones, and cars that help facilitate the job function itself.

Housing allowances, gym memberships, child care assistance, food and drink, stock options, and vacations are other common examples of fringe benefits. Some companies provide tuition assistance for employees to receive advanced degrees in a specific field.

Which fringe benefits are taxable?

Most fringe benefits are taxable, but it all depends on what they involve and how they are offered. More detailed information can be found in the Employer’s Tax Guide to Fringe Benefits, which provides a step-by-step breakdown of taxing fringe benefits. For the sake of simplicity, however, here’s an overview of the most common taxable fringe benefits taxable.

Mileage, Relocation, and Housing

Relocating is a common – and sometimes confusing – fringe benefit that employees must sort through. Fortunately, the IRS outlines limitations for mileage reimbursement, relocations, housing, and related benefits. These limits can help an employee decide whether they’re required to tax the given benefits or not.

Employers should also understand the limits and exemptions regarding reimbursements. If an employee would like to be reimbursed for excessive expenditures on work trips or other ventures, for example, they must provide adequate accounting to prove the cost.

Property

Many employees give laptops, cell phones, or even cameras to employees to aid them in performing the job function. These items are exempt from taxes if the employee only uses them for work. If they use them for personal needs, they must pay taxes on the personal use of that item. The same goes for cars. If an employee uses a company car for both work and professional circumstances, the employer must include the value of using that car in the employee’s income.

Which fringe benefits aren’t taxable?

Fringe benefits that fall under certain circumstances are not taxable. For example, any low-cost item that is excluded by law, such as a small gift or award, usually isn’t taxed. Refreshments during a business meeting, coffee during one-on-ones, or meals offered on business grounds aren’t usually taxable either.

It’s also important to understand that health insurance isn’t considered a taxable benefit to employees – up to a certain amount. The same goes for employee discounts on company products or services and transportation benefits like public transportation cards. As long as these elements are used for business purposes, they aren’t eligible for taxation.