What are Fringe Benefits According to the IRS

The IRS defines fringe benefits as “non-wage compensations that are in addition to an employee’s regular wages or salary.” Some common fringe benefits are subject to federal income tax withholding, Social Security tax, and Medicare tax, while others may be excluded from these taxes. Here are some examples of IRS fringe benefits:

1. Health Insurance: Employer-paid health insurance premiums are generally not subject to federal income tax withholding, Social Security tax, or Medicare tax. (My HR Pros can help you)

2. Retirement Plans: Employer contributions to a qualified retirement plan, such as a 401(k) plan, may be excluded from federal income tax withholding. (My HR Pros has a plan that we can get you started for only $125, and we handle the many requirements it takes to manage a plan)

3. Educational Assistance: Employer-provided educational assistance up to a certain amount may be excluded from federal income tax withholding, Social Security tax, and Medicare tax.

4. Transportation Benefits: Employer-provided parking and transit passes may be excluded from federal income tax withholding, Social Security tax, and Medicare tax up to a certain amount.

5. Life Insurance: Employer-paid life insurance premiums up to $50,000 payout amount may be excluded from federal income tax withholding, Social Security tax, and Medicare tax.

6. Employee Discounts: Employee discounts on employer-provided products or services may be excluded from federal income tax withholding, Social Security tax, and Medicare tax up to a certain amount.

7. Childcare Assistance: Employers may aid with childcare expenses such as a dependent care FSA or a subsidy to help pay for daycare services.

8. Professional Development: Employers may offer tuition reimbursement or professional development opportunities to encourage employees to develop new skills.

It is important to note that the specific tax treatment of fringe benefits can vary depending on the type of benefit, the amount provided, and other factors. Employers should consult with a tax professional or the IRS for guidance on the tax treatment of specific fringe benefits.
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Written by,
Jeremiah Bogdon, CPA, CPSP