Fringe Benefits

The IRS defines a fringe benefit as “a form of pay for the performance of services.” Fringe benefits are indeed a form of payment between an employer and employees, however they don’t come in the form of a paycheck. Common fringe benefits include:

  • health insurance
  • disability insurance
  • life insurance
  • discounted gym memberships
  • tuition reimbursement
  • stock options
  • company car or other property
  • Health Savings Account (HSA)
  • bonuses
  • retirement planning services
  • commuting benefits

Fringe benefits are generally sponsored by an employer, but the benefit itself is provided by a third party (such as a health insurance company). They are usually benefits that improve employees’ quality of life and exemplify company culture. They are often offered because of the potential benefits such as attracting and retaining talent.

A common question associated with fringe benefits is, are they considered taxable income? Generally fringe benefits are considered taxable income unless they are specifically excluded in tax law (which could be anything from qualified health plans to employee stock options so check the laws first!). Fringe benefits that are taxable will be reported on an employee’s W-2 or an independent contractor’s 1099-MISC. If the fringe benefits are considered taxable compensation, they are subject to Federal income tax withholding, Social Security taxes, and Medicare taxes. The IRS has more information regarding fringe benefits and taxes for employers.