» Fringe benefits: What’s reportable, what’s not

Fringe benefits: What’s reportable, what’s not

December 18, 2008 by Carol Katarsky
Posted in: Best practices, Communication, Fringe benefits, Hiring & training staff, In this week's e-newsletter, IRS regs, Latest news & views, T&E, Tax compliance

When raises are harder to come by, companies rely more on fringes to keep employees motivated. Here’s a guide to make sure you’re reporting everything you need to.

With the economy taking a hit, managers may be more likely to offer employees low-cost perks to keep them happy — and at their desks. And with increased use of fringes, you can expect to field more questions about what’s taxable and why.

Here’s a refresher you can use to make sure your company is in compliance with IRS rules — and to pass along to any employees who may have questions.

  1. If it’s cash, it’s reportable.  But remember, “cash” refers to anything that can be easily converted to cash, so that includes gift cards, gift certificates, etc. Other payments that fall under the fringe category are severance and vacation pay and  certain bonuses.
  2. So-called “working condition” and de minimis fringes are exempt. This can include job training (paid or reimbursed), limited use of employer facilities and equipment for personal use (phone calls, copiers, etc.) and even the old-fashioned holiday turkey.
  3. Services or goods offered for free or at a steep discount to employees are exempt. For example, if a hotel lets employees use un-booked rooms, a theater comps workers with unused tickets, etc.  If employees are buying the goods at a discount, the exemption is in place as long as the discount isn’t more than the gross profit percentage.
  4. Other fringes that are specifically named as exempt in the tax code include: Moving and transportation expenses, qualified tuition or educational assistance, cafeteria plans, dependent care, etc. Note: Even these fringes may be subject to certain limits to remain exempt. For example, you can only reimburse transportation expenses of $115 per month (in 2008). Any amount over that is taxable.

For all the details on how to report and track fringes, or to check on a specific benefit’s tax status, check out IRS’ guide to fringe benefits.

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