As tax season approaches, it’s important to start researching which benefits are considered taxable income for your employees. Be aware that fringe benefits are taxable. Fringe benefits are defined as forms of compensation other than money that your employees receive for their services. Unless the benefits are legally excluded, the IRS considers them taxable benefits. The list of exclusions may be lengthy, which is why it is essential to do your research.
Other types of employee fringe benefits that are taxed include meals, retirement stock options, and wellness programs. Some benefits are required by law, such as workers’ compensation and social security. Offering employee benefits is a great way to attract top talent. However, you must do your research so that you will not have to pay taxes you weren’t prepared for.
Here is a look at some of the common fringe employee benefits that are taxed. This should help give you a clear idea of your employee’s tax liability.
Using A Bicycle for Transportation
Offering a bicycle as a method of transportation was traditionally categorized as a non-taxable fringe benefit. However, the recent Tax Cuts and Jobs Act eliminated bicycling expenses as a non-taxable transportation expense. While you are still allowed to offer your employees reimbursement for bicycle commuting expenses, this is now a taxable fringe benefit.
Using A Company Car for Personal Endeavors
Letting employees drive company vehicles to perform personal activities is often complicated to classify. Employees are mandated to pay for the personal use of a company-owned vehicle. However, determining the appropriate amount can become complicated. You can decide the appropriate amount by using the lease valuation rule, general valuation rule, or cents per mile rule. A tax professional can assist you in figuring out which method is best for your business.
Going to The Gym
Offering a gym membership is one of the taxable fringe benefits. This is a good way to attract talent who are committed to maintaining good health and physical fitness. For a gym membership to avoid being a taxable benefit, the gym must be somewhere that is owned and operated by your business. The gym should also be used exclusively by your employees.
According to the IRS, any awards of personal property are viewed as non-taxable benefits. However, if you choose to honor your employees by giving them cash awards or prizes, those are viewed as taxable benefits. There is one way to avoid having this benefit taxed. Consider setting up a system where you can control the scenarios when your employees can redeem the prizes.
Frequent Flyer Miles
If your employees are issued company-owned cards for their trips, the accumulated frequent flyer miles are seen as a rebate instead of taxable income. However, if the frequent flyer miles are exchanged for cash, this becomes one of the employee’s fringe benefits that are taxed. Any cash your employees receive from traveling becomes taxable.
Any clothing that you issue to your employees is a taxable benefit. However, there are a couple of exceptions. If the clothing isn’t considered valuable, it is not a taxable asset. Clothing is also excluded from being seen as a taxable benefit if the clothes are necessary for the current working climate. You can avoid the classification if you purchase uniforms that are important for your employees to complete tasks.
Going the Extra Mile
You can reimburse your employees for extra mileage. This is a benefit that workers are no longer able to deduct on their taxes due to the Tax Cuts and Jobs Act. As you are trying to decide if this fringe benefit is taxable, look at the standard mileage rate according to the IRS. Miles are currently valued at 57.5 cents. Once the reimbursement rate goes over this figure, it is then seen as a taxable benefit.
Make sure that you research some of the non-taxable benefits according to the IRS.
- Health Insurance
- Tuition Assistance
- Childcare Assistance
- 401 (K) Plans
Offering fringe benefits can improve your customer retention rate. However, you need to be careful and understand the tax laws relating to the different fringe benefits that you wish to offer your employees. The experts at East End Insurance Agency can guide you through the process. We are ready to help you find the coverage that you need.