Simply put, fringe benefits are generally taxable unless specifically excluded from income. The IRS is becoming more aggressive in their payroll tax audits to ensure taxpayers are properly reporting employee wages. In order to help you simplify your reporting requirements, we have detailed a few of the more common fringe benefits and indicated how they should be reported on an employee’s W-2.
Employer paid health insurance is generally excluded from taxable wages and FICA. The exception is when you are a greater than 2% shareholder of an S Corporation. Any health insurance paid by the S Corporation on your behalf should be added to box 1 and box 16 of your W-2 as a non-cash item. However, it does not need to be included for FICA purposes.
Group term life insurance is important to add back to an employee’s W-2 so that if their beneficiary receives the benefit later on, it will be excluded from income. The premium paid on the first $50,000 is excludable from income, but any premium paid on a benefit over $50,000 should be included in an employee’s W-2, in boxes 1, 3, 5 and 16. Greater than 2% shareholders do not receive the $50,000 exclusion and should include the total premium in boxes 1, 3, 5 and 16.
For 2017, employers can exclude from an employee’s wages $255/month for parking and $255/month for transit passes.
Personal use of an employer owned automobile should be included in an employee’s W-2 in boxes 1, 3, 5, and 16.
De minimis benefits can be excluded from income, but never for a cash or cash equivalent (i.e. – gift cards). Examples of typical de minimis benefits are personal use of cell phone, holiday gifts, meals, occasional parties or picnics for employees, occasional tickets for theater, sporting event or transportation fare.
If you offer a fringe benefit to employees and are unsure how or if it should be included as taxable income, please contact your engagement team at DGC or Cathy Doe, CPA, MST at 781-937-5331 / firstname.lastname@example.org.