Businesses can provide great benefit plans to employees that don’t cost them much or anything at all.
Offering these benefits can be an effective way to recruit and retain top talent.
Here are a few examples of benefits that are generally excludable from income
- No-additional-cost-benefit – This benefit involves a service provided to employees that do not impose any substantial additional cost to the employer. These services are regularly offered to the employer’s customers in the line of business. The most common examples of these benefits would be the airlines offering free travel on a standby basis to its employees or a hotel offering free stays in vacant rooms to its employees.
- De minimis fringe benefit – In determining whether a benefit is de minimis, you should always consider its frequency and its value. An essential element of a de minimis benefit is that it is occasional or unusual in frequency. It also must not be a form of disguised compensation. Examples are:
- Controlled, occasional employee use of the photocopier
- Occasional snacks, coffee, doughnuts, etc.
- Occasional tickets for entertainment events
- Holiday gifts (e.g., Turkey)
- Occasional meal money or transportation expenses for working overtime
- Group-term life insurance for employee spouse or dependent with face value not more than $2,000
- Flowers, fruit, books, etc., provided under special circumstances
- Personal use of a cell phone provided by an employer primarily for business purposes
- Employee Discounts on products and services offered by the employer in the regular course of business.
- Use of business frequent flyer miles for personal travel.
- Employer-provided spending accounts such as medical flexible spending accounts and dependent care accounts.
- Athletic facilities primarily used by employees, if located at the place of employment.
- Moving expense reimbursements for actual costs paid or incurred.
- Certain payments made on employees’ behalf for public transportation to and from work and parking while at work.
Reporting of Cash and Gift Certificates
If you don’t see your fringe benefits on this list, there’s a good chance the value should be treated as taxable income for the employees. Cash benefits and gift certificates are almost always taxable. Cash is generally intended as a wage and usually provides no administrative burden to account for. Cash therefore cannot be a de minimis fringe benefit. Gift certificates that are redeemable for general merchandise or have a cash equivalent value are not de minimis benefits and are taxable. That means, they are included in the employee’s wages and reported on form W-2. Unless an exception applies, these benefits are also subject to federal income tax withholding, social security (subject to wage base limit), and Medicare tax.
Employers planning to incorporate new fringe benefits should consult the IRS’s Fringe Benefit Guide for in-depth information related to federal tax laws on benefits or seek professional advice to ensure that benefits are reported and taxed properly.
Please consult your Wegner CPAs advisor if you need help deciphering the fringe benefits that your business offers.