Fringe benefits are defined by the IRS as being a kind of pay that’s awarded for the performance of services. A fringe benefit is often considered to be an extra offering outside of a business’s standard health insurance plans.
The employer is regarded as the provider of any fringe benefits that employees receive, even if a third party provides them. For example, an employee may receive legal services that are provided by an attorney, but the employer would still be classed as the provider of the fringe benefit.
The Kinds of Fringe Benefits
There are several types of fringe benefits that are commonly offered:
- Transportation benefits such as a company car
- Stock options
- Health Savings Accounts (HSAs)
- Gym memberships
- Adoption assistance
These are just some examples of the most popular kinds of fringe benefits and they can vary depending on employer. A 401(k) and life insurance are also considered to be fringe benefits. In short, any compensation that exceeds an employee’s base, bonus, or commission-based salary can be defined as a fringe benefit.
Fringe Benefits Can be Taxable
Nearly all fringe benefits are taxable. The value of a fringe benefit is subject to federal income tax, Social Security tax, Medicare tax, and FUTA. However, the taxable portion of a fringe benefit can be reduced. For example, any amount that the employee pays for the benefit or fringe benefits that are given as compensation, such as an achievement award.
A common mistake is to believe that a fringe benefit isn’t taxable simply because it isn’t listed in any IRS publication. Tax laws generally don’t cover fringe benefits in detail other than if they are likely to be excluded from an employee’s income.
Benely, Your Benefit Experts
Here at Benely, we understand the importance of getting the right benefit packages for your team. After initial salary, a handsome benefit package is what attracts top talent to your business. Our vast network of major carriers can help you to get the best group health insurance for your employees while you sort out the finer details of their fringe benefits.