Taxation of fringe benefits

12/20/2019

Taxation of “Fringe Benefits”


What is a Fringe benefit and which ones are taxable?

A “fringe benefit” is a form of pay other than the money received for the performance of services.  Taxable benefits must be added to the employees W-2 and is subject to withholding. 

The following are the most common tax free fringe benefits, (some are subject to value limits)

  • Health, Accident, and Disability Insurance
  • Health Savings Accounts
  • Dependent Care Assistance
  • Group term life insurance
  • Employee discounts on the goods and services the employer sells
  • De minimis fringe benefits, such as low cost birthday or holiday gifts
  • Cafeteria Plans


Below are the most common examples of taxable fringe benefits

  • Company car that is also used personally
  • Mileage reimbursements above the IRS standard mileage rate
  • Cash awards and prizes
  • Expense reimbursements without adequate documentation from the employee
  • Moving expenses
  • Gym Memberships


Withholding and depositing taxes.

You can add the value of taxable fringe benefits to regular wages for a payroll period and figure income tax withholding on the total. Or you can withhold federal income tax on the value of fringe benefits at the flat 22% rate that applies to supplemental wages. See section 7 in Pub. 15 for the flat rate (37%) when supplemental wage payments to an individual exceed $1 million during the year.

You must withhold the applicable income, social security, and Medicare taxes on the date or dates you chose to treat the benefits as paid. 




Amount to report on Forms 941 and W-2.

The actual value of fringe benefits provided during a calendar must be determined by January 31 of the following year. You must report the actual value on Forms 941 (or Form 944) and W-2. If you choose, you can use a separate Form W-2 for fringe benefits and any other benefit information.

Include the value of the fringe benefit in box 1 of Form W-2. Also include it in boxes 3 and 5, if applicable. You may show the total value of the fringe benefits provided in the calendar year or other period in box 14 of Form W-2. For additional information about reporting of fringe benefits on Form W-2, see the General Instructions for Forms W-2 and W-3.


If you have any questions, please contact the office at 636-343-4511




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