Benefits packages are a significant and necessary part of any job, as they are, essentially, what takes care of your employees. But if you’re onboarding new recruits, changing insurance providers, or simply trying to offer more beneficialperks, your employees are bound to have questions—a lot of them. As an employer, you’ll build credibility with your team by having the knowledge and information ready that they need with regard to packages that are not commonly used. Like fringe benefits.
Fringe benefits are a form of payment for the performance of business services. The IRS offers an example of a fringe benefit in the frame of providing an employee with a business vehicle to commute to and from work. Fringe benefits can also include things like free or discounted commercial flights, discounts on property or services, memberships to social clubs, tickets to entertainment or events, and vacations.
These are just a few examples of what some fringe benefits look like. Let’s dive deeper…
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Fringe Benefits Overview
There is a wide variety of fringe benefits that are commonly offered—many of which are often included in hiring packages. Some traditional fringe benefits are:
- Childcare Assistance
- Disability Insurance
- Employee Discounts
- Flexible Scheduling
- Health Insurance
- Life Insurance
- Sick Days
- Stock Options
- Vacation Days
- Vision/Dental Insurance
Uncommon fringe benefits tend to be more company-specific. For example, companies like Dogtopia and PetSmart provide pet-friendly workspaces. Ben & Jerry’s even offers their employees free ice cream! And who doesn’t love free ice cream? Some other examples of non-traditional fringe benefits include:
- Childcare Reimbursement
- Commuter Benefits (gas cards, transit passes, etc.)
- Education Reimbursement
- Gym Memberships/Reimbursements
- Paternity Leave
- Subscription Services
Fringe benefits are a great incentive for recruiting and retention. By offering enticing and unique benefits, you are catering to your employees’ specific needs and building a solid working relationship.
Categories of Fringe Benefits
Now that we’ve covered some common and unique fringe benefits, let’s get into how they work on the tax side of things. What types of benefits are taxable? What types of benefits are nontaxable? And what about partiallytaxable, or deferred taxation benefits? Let’s discuss this further.
Taxable benefitsare included in gross income unless an Internal Revenue Code (IRC) section specifically exempts them. Fringe benefits, as previously stated, can often include property, services, cash, and cash equivalents. For example, bonuses are always taxable because there are no IRC sections that exclude them.
Nontaxable benefits do not have to be included in wages if a specific IRC section exempts them. For example, medical care premiums paid by an employer are not taxable to employees because IRC section 106 excludes them.
Partially taxable benefits exclude a portion of the value from taxation as defined in the tax code. For example, a public transportation subsidy or parking benefit is not taxable up to certain dollar limits.
Deferred taxation benefits include an employer’s contributions to an employee’s pension plan. These may not be taxable when made, but distributions may be taxed when taken by the employee during retirement.
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The taxation of fringe benefits can be complex. It’s important for employers and employees alike to understand what is being offered and how they are being taxed. If the nitty-gritty details are too overwhelming for you, a benefits professional can help make this process seamless and easy to navigate.
As an employer, you know better than anyone how hard your employees work to keep your business standing and operating successfully. So, why wouldn’t you want to offer them the best? By providing fringe benefits to your employees, you are offering them unique perks and advantages that make their lives easier. Don’t know how to get started? Schedule a benefits consultation with VensureHR and we’ll help you get there.