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Fringe Benefit Checklist
Rules Governing Fringe Benefits
The IRS defines gross income as "all income from whatever
source derived, including (but not limited to) compensation for services,
including fees, fringe benefits, and similar items…."
Wages include compensation for services, commissions, fringe
benefits, and similar payments.
Communicating and Collecting Taxable Benefit Information
- Why is good communication necessary?
- Where to begin?
- Who do I need to contact?
One of the challenges of year-end reporting and taxation
of fringe benefits is to obtain all the information required to assure
proper withholding and reporting of the benefits provided to employees.
Good communication is essential for Payroll to obtain this information
to achieve a successful year-end process.
Fringe Benefit Information Checklist
A Payroll Professional can use the following steps to determine
how a fringe benefit needs to be taxed and reported.
- Is the benefit exempt or taxable?
- If taxable, what amount or portion of it is taxable?
- If taxable, what taxes is it liable for?
- If taxable, when must the taxes on the fringe benefit be withheld from the
employee's pay?
- If taxable, on which federal and state forms is this reported?
Determine the following.
- When fringe benefits are considered paid
- Proper withholding on fringe benefits
- Special accounting rule used or not
- When to deposit taxes on fringe benefits
- Any employee taxes paid on behalf of the employer
- Any gross-up calculation applicable
- Any supplemental wage payments and the appropriate supplemental tax rate
- 25%
- 35%
Supplemental Payroll
The Payroll Calendar defines if the pay run is supplemental,
and the Supplemental rate is defined per Tax Code.
Nontaxable Fringe Benefits
There are four general categories of exempt fringe
benefits:
- No-additional-cost services
- Qualified employee discounts
- Working condition fringes
- De minis fringes
Transportation partially exempt:
- Transportation
- Transit subsidies
- Employer-provided parking
Taxable Fringe Benefits
- Bonuses and Commissions
- Dependent Care
- Cafeteria Plans
- Employee Auto Expenses
- Wages Paid after Death
- Business Expense Reimbursements
- Advances and Over-payments
- Moving Expense Reimbursements
- Awards and Prizes
- Educational Assistance
- Elective Deferrals
- Third Party Sick Pay
- Employer Provided Life Insurance
Get the Required Information onto the Form W-2
You will use one or more of the following to get the required
information from the system onto the Form W-2 and other year-end reports.
- Earnings code
- Deduction code
- Tax code
- Manual check
Plans to Consider
- Group life insurance
- Educational assistance
- Awards and prizes
- Employer reimbursed moving expenses
- Company-provided vehicles
- Auto allowance
- Taxes paid on employee’s behalf
- Dependent care assistance
- Salary reduction plans (qualified and non-qualified)
- Cafeteria plans
- Employee business expenses and advances
- Third party sick pay
- Withholding after the fact (imputed income)
- Wages paid after employee’s death