Value of Fringe Benefits
Generally, to value certain fringe benefits, the IRS provides other specific protocols that employers and workers can adhere to. The employer should not relinquish their obligations. The IRS notes that the company is the one granting the benefits, whether a third party or the customer provides the benefits to the employee for their service to the employer.
What is Not Taxed
However, the IRS emphasizes that if the employer pays the hospital or health insurance plans’ costs for their workers (including their spouses and dependents), these payments are not wages and have no taxes levied on them, such as the Social Security, Medicare, and Federal Unemployment Tax Act charges or withholding of federal income tax. This exception applies to long-term care insurance policies as well.
The cost of health insurance benefits must be in the wages of S corporation employees who own more than two percent of the business, but the IRS sets limits between proprietorships and employees. This list of exceptions to withholding laws is by no means complete, and changes may occur in the future. Discuss with a tax advisor to ensure that you’re administering your fringe benefits correctly.
Withholding Exclusions
Certain exclusions apply to withholdings, such as athletic facilities, employer-provided cell phones primarily for non-compensatory business purposes, meals furnished on-site at the business, and dependent care assistance up to $5,000 ($2,500 for couples filing as separate individuals).
