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Understanding Fringe Benefit Taxability

Fringe Benefit Taxability: Everything You Need To Know To Keep Your Company Compliant

Think that you’ve got a firm grasp on your company’s corporate tax responsibility for the past year? As the end of the year approaches, it’s common for business owners to begin thinking about putting together the needed data to compile the various employee documents for filing. While most entrepreneurs recognize that all their full-time internal employees with benefits will receive a W2 form, many don’t realize that the total claimed on each W2 doesn’t rely on salary alone. When compiling W2 forms for your staff members, it’s critical to also consider fringe benefit taxability to ensure your staff members claim the correct amount when they file their paperwork.

Understanding Fringe Benefit Taxability Basics

At The Payroll Company, we often partner with business owners in every industry who find themselves struggling to determine what constitutes a fringe benefit. Their confusion is understandable; unlike employee salaries that prove an easy to calculate total, fringe benefits are identified as forms of employment payment other than money rendered for the performance of services. In order to remain compliant when filing corporate taxes, entrepreneurs not only need to be able to identify what falls under the fringe benefit taxability bracket, but also include these benefits as payment on W2 forms.

Here at The Payroll Company, we work with our clients to help them understand the basic concept of how to calculate taxability of various fringe benefits. As a general rule of thumb, calculating fringe benefit taxability is based on fair market value minus the discount that employees receive. The primary purpose of fringe benefit taxability is to ensure that employees with higher compensation and access to more incentive programs and offerings still pay an appropriate tax percentage.

When partnering with The Payroll Company, we will work with key members in your organization to effectively pinpoint various programs and offerings provided to staff members that fall under the fringe benefit bucks. Some examples of included variables include:

Relocation expenses: Employees paid for moves that are fewer than 50 miles may be required to claim the reimbursement expenses as income.

Disproportionate mileage: The IRS mandates a standard mileage rate reimbursement; anything that exceeds this standard rate should be claimed.

Expense reimbursement without proper documentation: All employee expense reports must include specific documentation for payment; without this documentation, any employee expense payment can be liable to taxation.

Ineligible education expenses: Any non-job related educational assistance, as well as educational expenses that exceed IRS allowances can be taxed.

Tax Exempt Fringe Benefits

Of course, when working with The Payroll Company, we work with your team to not only determine what is taxable, but also to pinpoint what is exempt from fringe benefit taxability. Various services and programs such as health insurance, dependent care assistance, employee stock options, accident insurance and health savings accounts may all fall under the exempt umbrella. If you’re feeling overwhelmed with the entire process, The Payroll Company can help. Our team of experts will systematically go through every program and incentive your organization offers to keep your company compliant at all times. For more information, visit our website today at: