Taxable Fringe Benefit Guide - IRS

Taxable Fringe Benefit Guide

FEDERAL, STATE, AND LOCAL GOVERNMENTS

THE INTERNAL REVENUE SERVICE

January 2012

TABLE OF CONTENTS

1 Introduction

2 How To Report Taxable Fringe Benefits

3 Working Condition Fringe Benefits

4 De Minimis Fringe Benefits

5 No-Additional-Cost Fringe Benefits

6 Qualified Employee Discount

7 Qualified Transportation Fringe Benefits (QTF)

8 Health and Medical Benefits

9 Travel Expenses

10 Transportation Expenses

11 Moving Expenses

12 Meals and Lodging

13 Use of Employee-Owned Vehicle

14 Employer-Provided Vehicle

15 Equipment and Allowances

16 Awards and Prizes

17 Professional Licenses and Dues

18 Educational Reimbursements and Allowances

19 Dependent Care Assistance

20 Group-Term Life Insurance

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21 Volunteers

22 Independent Contractors

Appendix: Contact Information

INDEX

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1 Introduction

The Taxable Fringe Benefits Guide was created by the Internal Revenue Service office of

Federal, State and Local Governments (FSLG) to provide governmental entities with a basic

understanding of the Federal tax rules relating to employee fringe benefits and reporting.

As a supplement to other IRS publications, the Taxable Fringe Benefit Guide is designed to

help individuals responsible for determining the correct tax treatment of employee fringe

benefits and the appropriate withholding and reporting for them.

This publication covers:

? How to determine whether specific types of benefits or compensation are

taxable.

?

General procedures for computing the taxable value of fringe benefits.

?

Reporting the taxable value of benefits on Forms W-2 and 1099-MISC.

?

Rules for withholding Federal income tax, social security and Medicare taxes

from taxable fringe benefits.

?

How to contact the Internal Revenue Service with questions regarding taxation

and reporting requirements.

NOTICE

This guide is intended to provide basic information on

the tax treatment of fringe benefits. It reflects the

interpretation by the IRS of tax laws, regulations, and

court decisions. The explanations in the guide are

intended for general guidance only, and are not intended

to provide a specific legal determination with respect to a

particular set of circumstances. Additional research may

be required before a determination may be made on a

particular issue. Citations to legal authority are included

in the text. You may contact the IRS for additional

information. You may also want to consult a tax advisor

to address your situation.

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What Is a Fringe Benefit?

A fringe benefit is a form of pay (including property, services, cash or cash equivalent) in

addition to stated pay for the performance of services. Some forms of additional compensation

are specifically designated as ¡°fringe benefits¡± in the Internal Revenue Code; others, such as

moving expenses or awards, have statutory provisions providing for special tax treatment but

are not designated as fringe benefits by the Code. This publication uses the term broadly to

refer to all remuneration other than stated pay for which special tax treatment is available. The

definition of fringe benefits applies to services of employees and independent contractors;

however, unless otherwise indicated, this guide applies to fringe benefits provided by an

employer to an employee. (For a discussion of whether a worker is an employee or

independent contractor, see Publication 15-A.) Fringe benefits for employees are taxable

wages unless specifically excluded by a section of the Internal Revenue Code (IRC). IRC ¡ì61

IRC ¡ì3121, 3401; IRC ¡ì61(a)(1)

The IRC may provide that fringe benefits are nontaxable, partially taxable, or tax-deferred.

These terms are defined below.

Taxable ¨C Includible in gross income unless excluded under an IRC section. ¡°Taxable¡± means

the benefit is included in the employees' wages and reported on Form W-2, Wage and Tax

Statement, and generally is subject to Federal income tax withholding, social security (unless

the employee has already reached the current year social security wage base limit), and

Medicare. If the recipient is an employee, this amount is includible as wages. For example,

bonuses are always taxable because no IRC section excludes them from taxation.

Nontaxable (excludable) ¨C Excluded from wages by a specific IRC section; for example,

qualified health plan benefits excludable under section 105.

Partially taxable - Part is excluded by IRC section and part is taxable. Benefits may be

excludable up to dollar limits, such as the public transportation subsidy under IRC ¡ì132.

Tax-deferred ¨C Benefit is not taxable when received, but subject to tax later. For example,

employer contributions to an employee's pension plan may not be taxable when made, but

may be taxed when distributed to the employee.

More than one IRC section may apply to the same benefit. For example, education expenses

up to $5,250 may be excluded from tax under IRC ¡ì127. Amounts exceeding $5,250 may be

excluded from tax under IRC ¡ì132.

A benefit provided on behalf of an employee is taxable to an employee even if the benefit is

received by someone other than the employee, such as a spouse or a child. Reg. ¡ì 1.61-21(a)(4)

If an employee's wages are not normally subject to social security or Medicare taxes (for

example, because the employee is covered by a qualifying public retirement system),

otherwise taxable fringe benefits are not be subject to social security or Medicare taxes.

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