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Employee Fringe Benefits Taxable Under the Law

August 31st

It is very common in many businesses for employees to receive certain fringe benefits. According to the IRS, fringe benefits constitute “a form of pay for the performance of services.” Common benefits typically include health benefits or use of a company car.

As a form of payment, fringe benefits are typically considered income. As such, they are generally taxable under the law, unless there is a specific exception.

The IRS regulations governing employee fringe benefits can be quite complicated. However, a good understanding can mean not only an accurate tax return, but also save money expenses.

Excluded Fringe Benefits

It is important to remember that any fringe benefits are taxable, and must therefore be included in calculations of total gross income, unless explicitly excluded by law.

According to IRS regulations, excluded benefits are not subject to federal income tax withholding. They are also rarely subject to Social Security, Medicare, or federal unemployment taxes. Such benefits are not reported on your Form W-2.

Here are some of the most notable exempted fringe benefits:

1. Accident and Health Benefits. These benefits are exempt from taxation, with the exception of long-term care benefits provided through flexible spending or something similar.

2. Adoption Assistance. Adoption assistance benefits are always exempt from income tax withholding. They are, however, taxable under Social Security and Medicare taxes, as well as federal unemployment.

3. Retirement Planning Services. These fringe benefits are always exempt from taxation.

4. Meals. Business-related meals are exempt from taxation only if provided on the business premises.

5. Employee Discounts. Discounts offered to employees are exempt from taxation up to certain amounts. It also does not apply to any discounts given on real property or discounts on personal property held for investment purposes, such as stocks or bonds.

If you think you might qualify for any of these exemptions, or feel any confusion managing your fringe benefits on your tax return, it is advisable to consult a tax lawyer or tax planning professional.


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