Taxable fringe benefits
Taxable fringe benefits are noncash or employer-provided items that count as wages and must be added to taxable compensation for one or more wage bases.
Internal Revenue Code section 61 treats a fringe benefit as taxable wages unless a specific rule excludes it. So the question is always which exclusion applies. IRS Publication 15-B lists the exclusions and their conditions, several of which depend on how you document the benefit. The value enters the payroll run as its own earning, posted as imputed incomeImputed income. Imputed income is the value of a noncash or employer-provided benefit added to an employee’s taxable compensation for one or more wage bases.Click to open the term rather than cash, so the right taxes apply. An amount that never reaches payroll surfaces in January as a Form W-2Form W-2. Form W-2 is the annual wage and tax statement you give employees and file with the Social Security Administration, reporting wages paid and taxes withheld.Click to open the term problem.
Which fringe benefits are taxable?
Commuter benefits, and tuition assistance under a qualified plan, are excluded up to their limits; the excess is wages unless tuition is a working condition benefit. You set a valuation method first, such as annual lease value or cents-per-mile rule for a company vehicle. Wage bases can disagree: excess group-term life counts toward Social Security and Medicare wages but not FUTAFUTA. FUTA is the federal unemployment tax you pay on the first $7,000 of each employee’s wages a year, with nothing withheld from pay.Click to open the term wages. You may treat certain noncash fringe benefits as paid on a special accounting schedule (IRS Publication 15-B). Confirm a benefit’s treatment with a qualified tax professional before payroll.
- Personal use of a company car
- Group-term life coverage above the first $50,000
- Gift cards and cash equivalents of any amount
- Moving expense payments, for most employees under current law
- Off-site gym memberships
- Employer-provided health coverage
- Qualified retirement contributions
- De minimis benefits
- Working condition benefits
- Commuter benefits (qualified transportation): transit or vanpool, and parking, up to $340 a month each (2026)
- Tuition assistance and student loan payments under a qualified written educational assistance plan, up to $5,250 a year
General information, not legal or tax advice. Apply current federal and state rules with qualified guidance.