Fringe Benefits
The most common tax-free fringe benefit employers offer is health insurance. The second most popular tax-free fringe benefit is retirement benefits (e.g., a 401(k) plan). But the tax code contains many other items that may be offered to employees on a tax-free basis. Most of these fringe benefits fall under Section 132 — de minimis benefits, qualified employee discounts, no-additional-cost services, qualified transportation fringes, qualified moving expenses, and employer-provided athletic facilities. Other fringe benefits include dependent care assistance and educational assistance. Working condition fringes are separate subsets of fringes that allow you to pay for or reimburse employees for any expense they could deduct under Section 162 (trade or business expenses) and Section 167 (depreciation). Substantiation rules apply to working condition fringes. Fringes that can't be excluded from employees' income are usually valued at their fair market value and are fully taxable. Continue fringe benefits.
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FAQS
1. The company will be taking its top salespeople on a five-day retreat to a resort. Business meetings are scheduled for one hour a day for three days, during the late afternoon. Mainly, however, the plan is for employees to relax and go fishing. Is this a tax-free working condition fringe benefit, or must we include the value of the trip in employees' income?
2. An employee suffered a house fire and lost everything. We gave her $5,000 to help her re-establish her household. Is this emergency assistance taxable?
3. Regulations exclude de minimis fringe benefits, such as occasional tickets to sporting events or the theater, from employees' income. Our company buys $10,000 worth of professional basketball tickets, which the president distributes at her discretion. Each pair costs $400, and no employee receives them more frequently than others. Are the tickets tax-free de minimis fringe benefits?
4. Employees must wear special protective gear consisting of safety glasses and shoes. Provided they submit receipts, we reimburse them up to $65. Does the reimbursement qualify as a working condition fringe benefit?
5. We give employees turkeys at holiday time. That, however, wasn't good enough for one manager, who bought his most outstanding employee an expensive jacket. Unbeknownst to Payroll, Accounts Payable reimbursed the manager. How do we sort out the taxes?
6. Our top salesperson just won a vendor-paid trip for two to next year's Super Bowl. Is the value of the tickets (plus hotel, meals, etc.) taxable, and if so, who's responsible for what?
7. The company operates several miniature golf courses. To express management's appreciation, some employees were given comps for rounds of play anytime we're open. I've been told that under tax code Section 102, employers can't make gifts to employees, so they must be taxed on the value of the golf games. But isn't this a Section 132 fringe benefit, instead?
8. My company collects all the frequent flyer miles for our employees' business travel. Sometimes, as an incentive award, it will provide a free round-trip ticket to an employee "purchased" with these frequent flyer milers. Is this taxable? If so, how should it be valued?
9. We're trying to streamline the company's employee awards program. Instead of allowing employees to choose a 10-year length-of-service award from a catalog, we want to substitute $100 in cash. Is this OK? If the cash is taxable, how about a $100 gift certificate?
10.We want to offer employees $500 a year they could use for conferences, courses, or certification tests; to buy a computer; or for professional memberships. Is any of this taxable, and if it is, how can we change that?
11. Employees have been working late finishing up several important projects. Those who work up to four hours of overtime get $7 per hour in meal money. The company reimburses employees in full for their meals if they work longer than that. Is any of this taxable?
12. Under the company's proposed educational assistance plan, instead of reimbursing employees, they would be allowed to borrow money to cover their grad school expenses, up to $5,250 a year. Once they graduate, the company will forgive the debt. Employees would also receive additional salary equal to the interest and principal due on their loans each year. Does this plan qualify as a Section 127 educational assistance plan, and what's includable in income?
13. An employee said she heard that she could enroll her child in sleep-away camp for the summer and be reimbursed through the company's dependent care assistance program. Is she correct?
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