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Fringe Benefits

What are Fringe Benefits?

A fringe benefit is a form of payment, which takes the form of a benefit, for the performance of services.  A business or an employer may pay fringe benefits to employees, independent contractors, directors, or partners.  Examples of fringe benefits include:

      • Medical and dental insurance
      • Life insurance
      • Use of a company car
      • Housing allowance
      • Education assistance or tuition reimbursement
      • Employee meals and cafeteria plans
      • Employee discounts
      • Dependent/Child care assistance
      • Retirement Plan Contributions
      • Gym/fitness center memberships

Taxation of Fringe Benefits

Generally, fringe benefits are considered taxable, and the recipient of a fringe benefit must include the value of the fringe benefit in his or her taxable income.  There are exceptions, however, for instance if there is a law that specifically excludes a fringe benefit from income or if the recipient of the fringe benefit pays for the benefit.

It is important for business and employers to discern whether they provide fringe benefits and distinguish between taxable fringe benefits and nontaxable fringe benefits so they can understand how they are valued, properly handle them, and report them as income, when necessary.  For instance, businesses generally must report fringe benefits as compensation to the employee and withhold applicable income taxes and employment taxes.  Businesses that fail to properly account for or report fringe benefit payments, or meet withholding requirements relative to fringe benefits, may face an IRS audit and risk having significant employment tax issues.

Similarly, it is important for employees or other recipients of fringe benefits to know the proper tax treatment of any fringe benefits they receive.  Employees and other recipients of fringe benefits are often exposed to their own tax issues, may face an IRS audit, and may be subject to back taxes plus penalties and interest on fringe benefits they do not report as income.

What does or does not constitute a fringe benefit and whether a specific benefit is taxable to the recipient is not always clear and should be reviewed by a tax attorney.  If handled properly, certain fringe benefits are excluded from an employee’s wages.  Alternatively, fringe benefits that would otherwise be treated as nontaxable payments can become taxable if not substantiated properly.

An Employment Tax Attorney at the Politte Law Offices Can Help

If you have questions about benefits you provide or receive, or if you have encountered challenges to fringe benefits that you provided or received, contact an employment tax attorney at the Politte Law Offices.

Our experienced tax attorneys will put our familiarity with and knowledge of fringe benefits to work for your benefit.  We advise our clients as to what does or does not constitute a fringe benefit, whether specific fringe benefits are taxable, and the proper tax treatment of specific fringe benefits.  Our attorneys also represent clients in IRS audits involving fringe benefits and employment tax issues, and in resolving any employment tax issues, excise tax issues, or penalties they face from the IRS or state taxing authorities.

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