Your guide to taxable fringe benefits
There are a variety of perks offered by employers to make jobs more enticing. If you started a new job or are preparing your taxes, you might want to know more about these taxable fringe benefits. Or maybe you’re an employer who wants to know what qualifies as a fringe benefit and how they are taxed. We will outline some examples of fringe benefits and what they look like to employees and go over some examples of non-taxable fringe benefits. We will also go over what these taxable fringe benefits mean for employees. Whatever the case, you can be armed with knowledge about fringe benefits whether you are receiving or supplying them.
1. What are Some Examples of Fringe Benefits?
If you get something outside of a regular paycheck from your employer, chances are it’s a fringe benefit. These perks are meant to offer motivation to the employees to do better work, and in some cases to retain employees. Some common benefits offered are:
- Insurance coverage: This could include health insurance, life insurance, or even disability insurance. Insurance is one of the most popular fringe benefits you will find.
- Retirement contributions: Whether it is 401k contributions or something else, companies often offer this kind of benefit.
- Transportation reimbursement: If you live in a city with public transportation or use your personal vehicle for work, your employer may offer a benefit to pay for all or part of your costs.
- Paying for meals: While often associated with the start-up tech culture, many companies pay for meals as an added benefit. This could be in free or heavily subsidized cafeterias or for team lunches or dinners when working late.
- Company cars: If you are in sales or another position that involves a lot of driving, your company might provide either a leased vehicle or a rental.
- Gym membership contribution: Employers want to keep their employees healthy and some offer a monthly contribution toward a gym membership or fitness classes.
- Education assistance: This benefit might be offered if you need to take classes to learn something new and implement it at your company, or your job simply pays for part of their employees’ schooling.
2. What are Taxable Fringe Benefits?
Fortunately, most of the common fringe benefits fall into the non-taxable category. There are still some employee fringe benefits you might encounter that are taxable, however. Here are a few of them.
- Moving expenses: It used to be that if you moved more than 50 miles for work, your company’s reimbursement for moving expenses was non-taxable. But the tax law (through the Tax Cuts and Jobs Act) was changed and until 2025, your work-related moving expenses are now considered one of the taxable benefits for employees no matter how far it is.
- Excess mileage reimbursements: If you use your personal car for work and your mileage reimbursements go over what the IRS considers a standard amount, that excess amount is a taxable employee fringe benefit.
- Some educational reimbursements: If the dollar amount your company pays for your education exceeds the IRS standard, you will be taxed on that amount. This also applies if the IRS finds that the schooling is not work-related.
- Commuting by bike: Some companies give employees money each month if they commute by bike. Due to changes in the tax law, all that money is now taxable.
3. What are Non-Taxable Fringe Benefits?
Many of the common employee fringe benefits you will be offered at your job are (thankfully) tax-free. These benefits are truly non-taxable, meaning there are no federal, state, local, Social Security or Medicare taxes levied on them. However, you need to be certain come tax time that the fringe benefit is non-taxable the way you used it. Here are some examples of non-taxable fringe benefits.
- Health benefits: These benefits include health, vision and dental coverage paid for by your employer. This also includes any payments made for things that are not covered by the health benefits, like a contribution towards eyeglasses, for instance.
- Education: An employer can pay up to a certain amount for an employee’s education, including tuition, books, or other fees. If the employer pays over the amount set by the IRS, that is a taxable fringe benefit.
- Various types of insurance: There are several kinds of coverage provided to employees that are tax-free. Long-term care coverage premiums, group term life insurance up to a certain amount, and disability coverage premiums. Benefits received from long-term care or disability coverage are taxable.
- Transportation: If you drive to work, your employer can reimburse you up to a certain amount for parking. There is also a tax-free allowance to pay for things like shuttle busses or mass transit passes. Employers, however, will be taxed on this until at least 2025.
- Childcare: An employer can pay for up to a certain amount of child or dependent care allowed by the IRS tax-free. However, if the employee files for a tax credit for child or dependent care, they cannot take the non-taxable fringe benefit for childcare from their employer.
- Work provisions: If your employer pays or reimburses you for work-related travel expenses, business-related meals, or a company car that you drive for business purposes, these are all non-taxable.
Keep in mind that these are all just examples of things that are considered non-taxable by the IRS. There are other items that also fall into this category, so if your employer pays for something as a fringe benefit, you should be sure to check the IRS website or talk to your tax advisor about whether that item is taxable or tax free.
4. How Company Cars are Classified as a Fringe Benefit
Whether you use your personal vehicle for work, or your employer provides a car for you, you might be wondering how you will be taxed. It can get a bit complicated, but we are here to help walk you through it.
If your employer gives you a company car as part of your compensation package and allows for personal use of the vehicle, it’s important to keep track of your mileage for company and for personal driving. The value of the personal use of the vehicle is taxable, whether that is calculated on a cents-per-mile basis or fleet-average valuation. It’s also important to read up on the most-recent IRS rules regarding this, as they can change from year to year.
If you are a business owner or self-employed and using your personal vehicle for business, it’s also important to keep track of how much you use your vehicle for work. According to the IRS “If a taxpayer uses the car for both business and personal purposes, the expenses must be split. The deduction is based on the portion of mileage used for business.” While the deduction is based on mileage, there are 2 ways to figure your car expenses, according to the IRS.
Employees who use their personal car for work can no longer deduct the cost as a business expense, even if their employer doesn’t reimburse them for mileage or other car costs.
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Employees who use their personal car for work can no longer deduct the cost as a business expense, even if their employer doesn’t reimburse them for mileage or other car costs.
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