Fringe Benefits

Fringe Benefits

As of 2019, the list of fringe benefits excluded from income taxes includes: Accident and health benefits Achievement awards (up to $1,600 for qualified awards) Adoption assistance Athletic facilities Commuting benefits De minimis (minimal) benefits Dependent care assistance Educational assistance Employee discounts Employee stock options Employer-provided cell phones Group-term life insurance coverage Recipients of taxable fringe benefits are required to include the fair market value of the benefit in their taxable income for the year. Some of the most common fringe benefits like health and life insurance are not taxable but others are taxed at fair market value. These include health insurance, life insurance, tuition assistance, childcare reimbursement, cafeteria subsidies, below-market loans, employee discounts, employee stock options, and personal use of a company-owned vehicle.

Fringe benefits help companies recruit, motivate, and keep high-quality employees.

What Are Fringe Benefits?

Fringe benefits are additions to compensation that companies give their employees. Some fringe benefits are given universally to all employees of a company while others may be offered only to those at executive levels. Some benefits are awarded to compensate employees for costs related to their work while others are geared to general job satisfaction.

In any case, employers use fringe benefits to help them recruit, motivate, and keep high-quality people.

Fringe benefits help companies recruit, motivate, and keep high-quality employees.
Companies competing for the most in-demand skills tend to offer the most lavish benefits.
Some of the most common fringe benefits like health and life insurance are not taxable but others are taxed at fair market value.
Adoption assistance is exempt from income tax.

Understanding Fringe Benefits

Common fringe benefits are basic items often included in hiring packages. These include health insurance, life insurance, tuition assistance, childcare reimbursement, cafeteria subsidies, below-market loans, employee discounts, employee stock options, and personal use of a company-owned vehicle.

Uncommon fringe benefits may fit the company profile. PetSmart And Dogtopia both operate pet-friendly workplaces. Ben&Jerry's rewards its workers with free ice cream. Patagonia's headquarters features extensive volleyball courts and yoga classes.

The companies that compete for the best talent in highly competitive fields may offer the most extraordinary fringe benefits. Alphabet, the parent company of Google, is known for its benefits that include free commuter bus service and a free gourmet cafeteria. Microsoft gives 20 weeks of paid time off to new birth mothers and 12 weeks for other new parents.

Valuing Fringe Benefits

Any fringe benefit not named above, or any of the benefits named above which does not conform to IRS rules for exemption, is taxable. Those rules are complex too.

For example, working condition benefits are taxable to the extent that they are for personal use. If an employee is given a laptop, the taxable income would be the percentage of the laptop's fair market value that is devoted to personal use. If 80% of its use is personal, the taxable income is 80% of the value of the computer.

In general, fringe benefits are valued at fair market value. This is the amount the employee would pay for the same benefit at retail.

Special Considerations

By default, fringe benefits are taxable unless they are specifically exempted. Recipients of taxable fringe benefits are required to include the fair market value of the benefit in their taxable income for the year.

The companies that compete for the best talent in highly competitive fields may offer the most extraordinary fringe benefits.

The Internal Revenue Service (IRS) maintains a list called the Tax Guide to Fringe Benefits. As of 2019, the list of fringe benefits excluded from income taxes includes:

All of these exemptions are subject to certain and often complex conditions. For example, achievement awards are only exempt up to a value of $1,600 for qualified plan awards and a value of $400 for non-qualified plan awards.

Qualified plan awards are open to all employees, not just highly-paid employees. Other exemptions are not available to highly compensated employees if the benefits are given to them but not rank-and-file employees. These include employee discounts, adoption assistance, and dependent care assistance. Most but not all fringe benefits that are income tax-exempt are also exempt from Social Security, Medicare, and federal unemployment taxes.

Related terms:

Cash Wages

Cash wages are compensation for employees that come in the form of spendable money. read more

Dependent Care Benefits

Employers provide dependent care benefits to employees for use in caring for dependents, such as young children or disabled family members. read more

Employee Stock Option (ESO Calculation)

An employee stock option (ESO) is a grant to an employee giving the right to buy a certain number of shares in the company's stock for a set price. read more

Fair Market Value (FMV)

Fair market value is the price of an asset when both buyer and seller have reasonable knowledge of the asset and are willing and not pressured to trade. read more

IRS Publication 15-B, Employer's Tax Guide to Fringe Benefits

IRS Publication 15-B, Employer's Tax Guide to Fringe Benefits is an IRS document providing information on accounting for fringe benefits. read more

Payroll Deduction Plan

A payroll deduction plan is when an employer withholds money from an employee's paycheck, most commonly for employee benefits and taxes.  read more

Remuneration

Remuneration is an employee's total compensation, including base salary, bonuses, expense account reimbursements, and other financial benefits. read more

Stipend

A stipend is a set amount of money that may be provided to individuals to help them offset expenses. read more

Unemployment

Unemployment is the term for when a person who is actively seeking a job is unable to find work. read more

Wellness Program

Wellness programs aim to improve employee health through exercise, weight loss, and preventive education. Some offer cash or gift card incentives. read more