What Exactly Are Fringe Benefits?
Companies provide fringe benefits as an additional remuneration to their employees. Some fringe perks are available to all employees, while others are reserved for executives. Some perks cover work-related expenses, while others boost job satisfaction.
In any case, organizations utilize fringe benefits to attract, motivate, and retain top talent.
Understanding Fringe Benefits
Hiring packages frequently include essential fringe perks. Benefits include health, life, tuition, daycare, cafeteria subsidies, loans, discounts, stock options, and company-owned vehicles.
Unusual fringe perks may match the firm. Both PetSmart and Dogtopia have pet-friendly workplaces. Ben & Jerry’s gives employees free ice cream. The Patagonia headquarters include volleyball courts and yoga programs.
Companies that compete for top talent in competitive sectors may offer the highest fringe perks. Free gourmet cafeterias and commuter bus service are hallmarks of Alphabet, Google’s parent company. Microsoft provides 20 weeks of paid leave for birth moms and 12 weeks for other new parents.
Pricing fringe benefits
Any fringe benefit not listed or non-exempt according to IRS guidelines is taxed. Those regulations are complicated.
Personal use and working condition benefits are taxed. Using a laptop for personal use is taxable revenue if an employee receives one. Taxable income is 80% of the computer’s value if 80% is personal.
Fringe benefits are usually market-valued. Employees would pay this for the same perk at retail.
Special Considerations
Unless otherwise excluded, fringe benefits are taxed. Taxable fringe benefit recipients must report the fair market value of their annual taxable income.
The IRS provides a tax guide to fringe advantages. Exempt fringe advantages from income taxes include:
- Health and accident benefits
- Qualified achievement rewards up to $1,600
- Help with adoption
- Athletic facilities
- Commuters benefit
- De minimis advantages
- Dependent care help
- Help with education
- Employee discounts
- Stock options for employees
- Mobile phones from employers
- Group term life insurance
- Health savings accounts
- Business-site lodging
- Meals
- Extra-free services
- Services for retirement planning
- Reduced tuition
- Working circumstances help
Many stringent restrictions apply to all exemptions. Achievement awards are exempt up to $1,600 for eligible and $400 for non-qualified plan rewards.
No matter their salary, all workers can receive qualified plan rewards. Other exemptions are not accessible to highly compensated workers who get perks but are not rank-and-file employees. Adoption, dependent care, and employee discounts are examples. Many income-tax-exempt fringe advantages are also tax-exempt from Social Security, Medicare, and unemployment.
Companies that compete for top talent in competitive sectors may offer the highest fringe perks.
Are fringe benefits taxable?
The recipient’s remuneration must include any fringe benefit you give unless the law exempts it (see above).
A cafeteria plan?
Employees can choose from a company-offered set of fringe perks called a cafeteria plan. Insurance, retirement, and other pre-tax benefits are standard. As with a cafeteria buffet, it is a menu of advantages that may be chosen or declined.
Is an employee’s lifetime achievement award taxable?
Achievement awards may be tax-free fringe benefits, provided they fulfill specific conditions. It must be under $1,600, not cash or currency equivalents like gift certificates or cards. Stocks, bonds, and other instruments cannot represent it. There is no exclusion for holidays, meals, lodging, or tickets to the theater or sporting events. The tax exclusion applies to wristwatches.
Conclusion
- Employers can attract, motivate, and retain top talent with fringe benefits.
- When vying for top talent, companies offer expensive rewards.
- Expected fringe benefits like health and life insurance are not taxable, while others are at fair market value.
- Income-tax-free adoption aid
