Fringe Benefits: Giving Perks to Employees
Provided by HG.org
In order to entice talented individuals to work for them and to retain qualified staff, some employers offer fringe benefits and other perks to employees. Knowing about fringe benefits can help employees and employers have a better understanding of what a new or existing job provides in the way of benefits.
What Are Fringe Benefits?
Fringe benefits are any benefits that employers give employees in addition to their salary or hourly wage. Some employers offer these benefits to all employees while other employers offer them as an incentive to individuals who provide notable contributions to their workplace.
What Are Some Examples of Fringe Benefits?
Fringe benefits can encompass a wide variety of benefits. They are any form of nonwage compensation. Common benefits include group health insurance at reduced rates, life insurance, retirement plans, prescription plans, vision plans, dental plans and long-term care insurance plans. Paid holidays, paid sick days and paid maternity leave are other such fringe benefits. Some employers currently offer employees relocation assistance, transportation benefits, child care benefits and legal assistance plans. Employee discounts at hotels, theme parks and theaters are also considered a fringe benefit.
What Are the Tax Consequences of Fringe Benefits?
Generally speaking, fringe benefits are not taxable for employees but are for employers. Such benefits can be tax deductible from the employer’s gross income. However, some fringe benefits aren’t tax deductible when they are required for employment. For example, if the employee requires special clothing to protect himself or herself from injuries, providing such clothing will not generally be considered tax deductible. Additionally, fringe benefits that help provide health coverage for employees are also not usually subject to federal income tax.
Fringe benefits are usually included as part of the employee’s taxable income unless they are specifically excluded from taxation according to the tax code. There are several tax-free employee fringe benefits that do not need to be included on an employee’s W-2 or his or her compensation.
These include health insurance up to a certain dollar amount, health savings accounts, dependent care assistance, educational assistance, reimbursements for moving expenses, employee stock options and group term life insurance if under a certain policy value. Profit-sharing plans, money purchase plans, stock bonus plans and other qualified employee benefits plans are also excluded. Likewise, if an employer offers employee discounts, supplemental unemployment benefits or commuting benefits, these are also excluded from the employee’s compensation. Any benefit that provides a low-cost benefit such as a birthday gift or retirement gift are also excluded, as are cafeteria plans.
However, there are also a number of fringe benefits that are taxable. For example, excessive mileage reimbursements, moving expenses if the move is less than 50 miles, clothing, excessive education reimbursements and cash awards are usually taxable.
One particularly dicey fringe benefit is a working condition fringe. This is something that provides an employee with something that he or she needs to complete the job. A common example is a company car. This type of benefit is tax-free to the employee that he or she would have been able to deduct the expense of it as a business expense if he or she had personally purchased it. For example, if the employee uses the company car 50% of the time for work purposes and the other 50% of the time for personal business, the employee must pay tax on the personal use of the car, based on the fair market value of the benefit.
Advantages of Providing Fringe Benefits
Although the tax implications can seem confusing at times, many employers realize the benefits of providing extra compensation to their workforce. For example, companies can ensure that their employees stay healthy and available with extensive health coverage. Additionally, they may enjoy certain tax breaks if they provide group plans. Employees may prefer fringe benefits over a higher salary and tax liability when the fringe benefits are not taxable. Additionally, employees may have a better opinion of employers who offer a variety of benefits that exceed minimal requirements as set out by state or federal government.
Disadvantages of Providing Fringe Benefits
However, there are also a variety of disadvantages of offering fringe benefits. For example, they represent a certain expense to the employer, a particularly high expense for small employers. For certain benefits, it is difficult for employers to offer them without substantial expense such as healthcare. Administrative fees are also incurred for each type of benefit that is made part of the benefit plan.
Examples of Fringe Benefits:
• Retirement benefit plans
• Group health insurance
• Medical, prescription, dental, and vision plans
• Long-term care insurance plans
• Life insurance coverage
• Relocation assistance
• Legal assistance plans
• Transportation benefits
• Child care benefits
• Adoption assistance
• Employee discounts (e.g. wellness programs, hotels and resorts, movie theaters, theme parks, business establishments, etc.)
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.