When it comes to attracting and retaining the top talent in your industry, businesses seem to have no choice but to get creative with their benefits packages. This practice of providing fringe benefits is especially common when we talk about jobs in the technology industry, which expanded 31 percent faster than other high-growth sectors from 2004 to 2014. Leading the pack when it comes to fringe benefits in the tech sector are Google, Facebook and Twitter, companies that continue to woo prospective employees with perks such as free food, massages, fitness centers and game rooms and, for the most part, they are tax-free.
Have you been considering new ways to increase the quality and quantity of your talent pool? Offering fringe benefits may provide you with the leverage you need to stand out among your competition. Here’s a peek into Publication 15-B, the Employer’s Tax Guide to Fringe Benefits, which is a helpful tool for employers who are looking to learn more about the treatment various kinds of fringe benefits will receive at tax time.
What Is A Fringe Benefit?
Generally speaking, a fringe benefit is a form of payment given to a person in exchange for the performance of services. This benefit can be provided by you (the employer) to any person (not necessarily an employee) who is performing services for your business, which means independent contractors and partners, for example, are also eligible to receive fringe benefits.
Are Fringe Benefits Taxable?
All fringe benefits provided by your business are taxable and must be included in your recipients pay unless the law specifically excludes it. Further guidance on how to determine the taxable inclusion amounts is found in Publication 15-B. That being said, cash, cash equivalents and gift cards are generally considered taxable and are not included on the exclusion list below.
What Types Of Fringe Benefits Are Specifically Excluded And Non-Taxable?
(This is not an extensive list.)
- Achievement Awards – Employees like being recognized for their length of service or safety achievements. While recognition/awards that take the form cash, cash equivalents and gift certificates are taxable, employers can reward employees with tangible personal property under this exclusion. Note: Depending on the type of the award, dollar limits may apply.
- Athletic Facilities – If you maintain an on-site athletic facility that is exclusively used by your employees, your employees’ spouses and their dependent children, the value of this benefit is not required to be included in your employee’s wages.
- De Minimis Fringe Benefits – De minimis fringe benefits are “perks” that are considered to have very little value – so much so that accounting for a benefit of this size would be considered unreasonable or administratively impractical. Common examples of de minimis fringe benefits include:
- Occasional personal use of company copying machine
- Holiday gifts, with a low market value
- Occasional tickets to the theater or a sporting event
- Occasional parties and picnics for employees and their guests
- Employee Discounts – This fringe benefit, while subject to limitations, implies that an employer can offer employees a discount for property or services, as long as it is provided to your customers as well.
- Employer-Provided Cell Phones – Many employers provide cell phones for non-compensatory business reasons. Personal use of an employer provided cell phone is excludable from an employee’s income.
- Meals
- De minimis meals – Coffee, donuts, soft drinks and meals that help to enable employees to work for longer periods of time are not taxable.
- Meals on your business premises – Meals that are provided to employees on your company’s property, that are made available for convenience (facts and circumstances) are excludable.
- Food service employees – Meals provided to food service employees during or immediately before or after the employee’s shift are also excludable.
NOTE: Expect to see more IRS guidance forthcoming regarding meals as they fine tune the “employer’s convenience” guidance. With all the attention Google and Facebook have garnered for their employee meals the IRS has made meal fringe benefits a priority initiative.
Email Rea & Associates to learn more about what tactics are available to help you attract the talent you need while helping you keep your tax bill down.
By: Trista Acker, CPA, CFP (Dublin office)
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