Taxable Fringe Benefits that should be Reported to the IRS as Income

Photo by seb_ra/iStock / Getty Images
Photo by seb_ra/iStock / Getty Images

Some Fringe Benefits are Taxable While Others are Not.

Until now, there are still employers that do not know which fringe benefits need to be reported as part of employees’ wages, and which need not. They tend to make these fringe benefits subject to federal income and employment tax withholding. This mistake can be quite costly to both the employee and the.

Fringe benefits that are taxable as income

Whether you are an employees or an employer, here is a list of the fringe benefits that you should report as part of the employee’s income:

1.    Gift card or cash card

These items should be reported as part of your income no matter how small the amount.

2.    Awards and prizes

Items or cash prize that were obtained from joining in competitions should also be part of your income.

3.    Regularly sponsored food

If your employer constantly provides you with food or drinks on a regular basis, their value should be added in your income.

4.    Gym membership

Any program that is sponsored by your company in order to promote health and wellness - such as a complimentary massage, gym membership, or gift certificate to a spa - should be reported as part of your income. However, if you are an employee of the gym or spa then this is not included.

5.    Using a company car

If your employer allows you to use the company car for errands or personal matters outside office hours then the cost should also be included in your income.

Which fringe benefits are non-taxable?

Your benefits should be added to your income only if they are not covered by an exemption. Two of the most common fringe benefits that are tax-free are the following:

1.    De Minimis

According to the Internal Revenue Code, a De Minimis benefit is a service or property whose value is considered to be so small that taking it into account is already unreasonable or impractical for the employer. Examples include:

  • Occasional use of the office’s photocopying machine
  • Occasional provision of food such as snacks and coffee
  • Gifts for the holidays
  • Occasional meal or transportation allowance for working overtime
  • ·Group life insurance for the spouse or dependent of an employee not exceeding $2,000

2.    Working condition

These are properties or services that can be deducted to your tax return if you paid for it as an expense that is not reimbursed. Some examples include travel expense incurred to attend a business meeting and expenses for meals where the business is operating.

The responsibility to report the income of employees is on the employer. However, the employee should still see to it that the report submitted to the IRS is accurate.

Contact your fringe benefits advisor today

Looking for more information about fringe benefits? ARCHER JORDAN is here for you! We are your reliable fringe benefit consultants. We can help you avoid paying non-compliance penalties and assist you in better managing employee benefits. Call ARCHER JORDAN for details.