Accounting On Us
The advantages of fringe benefits
Plus, how to understand the tax consequences
Kelly P. Lynch, CPA
As an employee, fringe benefits are a huge part of your compensation. These benefits are the extras you receive such as health insurance, a company car, dependent care assistance and educational assistance – just to name a few. Every company will have a different benefit package, so it’s important to understand what those benefits are so you can take advantage of them. Equally important, though, is understanding the tax consequences of fringe benefits.
Types of fringe benefits
Fringe benefits can be both taxable (included in your taxable income, and therefore, reported on your W-2) and nontaxable (not included in your taxable income and may not have to be reported on your W-2). There are many different types of nontaxable fringe benefits, but two of the most common are the de minimis fringe benefit and the working condition fringe benefit.
De minimis fringe benefit. This is defined in the Internal Revenue Code as property or services with a value so small that accounting for it is unreasonable or administratively impracticable for your employer. There is no specific dollar amount that, if exceeded, automatically makes a benefit more than de minimis. However, an unofficial guideline is around $75, as the IRS has specifically provided that $100 would not be considered de minimis.
Some examples of de minimis fringe benefits that would not be included in your taxable income, so long as they are provided infrequently, are:
- Personal use of a photocopier
- Employee picnic
- Coffee, donuts or soft drinks
- Holiday or birthday gifts with a low fair market value
Examples of benefits that would not be considered de minimis and, therefore, should be included in your taxable wages include:
- Cash or cash equivalents
- Use of employer’s vacation home or boat
- Country club or athletic facility dues
The actual value of these fringe benefits provided during a calendar year would be reported to you in Box 1 on your W-2, along with your regular wages. The total value of the fringe benefits provided are also disclosed in Box 14 on W-2.
Working condition fringe benefit. Examples of working condition benefits include use of a company car for business, an employer-provided cell phone and job-related education. Essentially, this is property and services provided to you, so you can perform your job. The value of a working condition benefit is excluded from wages, provided business use is substantiated.
Other fringe benefits
In addition to de minimis and working condition fringe benefits, you may receive some, or all, of these other common fringe benefits:
Accident and health plan. This arrangement provides benefits for you, your spouse and children (under age 27 at the end of the tax year) in the event of personal injury or sickness. The value is generally excluded from wages, with the exception of greater than 2% shareholders of an S Corporation.
Dependent care assistance. These are household and dependent care services provided to allow you to work. The value of these services is excluded from wages, subject to limits. The amount that can be excluded is up to $5,000 for married filing jointly. This limit is reduced to $2,500 for married filing separately. The value of all payments is reported in Box 10 on your W-2.
Educational assistance. You can receive educational assistance under an educational assistance program and exclude up to $5,250 from wages. Any amount exceeding $5,250 must be included in your wages. Educational assistance may include the cost of books, equipment, fees, supplies and tuition. Graduate courses may also satisfy this exclusion.
Tax reform impact
There are some changes to fringe benefits that took effect in 2018 as a result of the Tax Cuts and Jobs Act (TCJA):
- Suspension of the exclusion for qualified bicycle commuting reimbursements. Any reimbursement is now included in your wages, subject to income and employment taxes.
- Suspension of exclusion for qualified moving expense reimbursements. Any moving expense reimbursement received is now included in your wages, subject to income and employment taxes. However, members of the U.S. Armed Forces can still exclude qualified moving expense reimbursements from income.
- Prohibition on cash, gift cards and other non-tangible personal property as employee achievement award. You can exclude certain achievement awards from your wages if the awards are tangible personal property (think a luggage set received for your 10-work-year anniversary). TCJA clarifies that tangible personal property does not include cash, cash equivalents, gift cards, tickets to the theatre or sporting events, vacations, lodging, securities or other similar items.
For more information on fringe benefits, check out IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits, or contact your Henry+Horne tax advisor.