Fact Sheet #66E: The Davis-Bacon and Related Acts Compliance with Fringe Benefit Requirements U S. Department of Labor

It also cannot come in the form of stocks, bonds, or other securities. The exclusion also doesn’t apply to vacations, meals, lodging, and tickets to theater or sporting events. Fringe benefits are additions to compensation that companies give their employees. Some fringe benefits are given universally to all employees of a company while others may be offered only to those at executive levels. Some benefits are awarded to compensate employees for costs related to their work while others are geared to general job satisfaction. You can also treat the value of a single fringe benefit as paid on one or more dates in the same calendar year, even if the employee receives the entire benefit at one time.

For more information on what wages are subject to Medicare tax, see Table 2-1, earlier, and the chart, Special Rules for Various Types of Services and Payments, in section 15 of Pub. For more information on Additional Medicare Tax, go to IRS.gov/ADMTfaqs. You can use the unsafe conditions commuting rule for qualified employees if all of the following requirements are met. For an automobile you bought at arm’s length, the safe-harbor value is your cost, including sales tax, title, and other purchase expenses.

All of an employee’s use of a qualified nonpersonal use vehicle is a working condition benefit. A qualified nonpersonal use vehicle is any vehicle the employee isn’t likely to use more than minimally for personal purposes because of its design. Qualified nonpersonal use vehicles generally include all of the following vehicles. An educational organization can exclude the value of a qualified tuition reduction it provides to an employee from the employee’s wages. For this exclusion, treat any recipient of a de minimis transportation benefit as an employee. A no-additional-cost service provided to your employee by an unrelated employer may qualify as a no-additional-cost service if all the following tests are met.

  • You don’t have to include the value of a telephone or any specialized equipment added to, or carried in, the automobile if the equipment is necessary for your business.
  • All of an employee’s use of a qualified nonpersonal use vehicle is a working condition benefit.
  • Any use of a company-provided vehicle that isn’t substantiated as business use is included in income.
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If you paid the required amount of taxes but withheld a lesser amount from the employee, you can recover from the employee the social security, Medicare, or income taxes you deposited on the employee’s behalf and included on the employee’s Form W-2. However, you must recover the income taxes before April 1 of the following year. The above choice for reporting and withholding doesn’t apply to a cash fringe benefit or a fringe benefit that is a transfer of tangible or intangible personal property of a kind normally held for investment or a transfer of real property. For these kinds of fringe benefits, you must use the actual date the property was transferred to the employee.

Benefits of Offering Fringe Benefits

Wages for social security, Medicare, and FUTA taxes don’t include remuneration resulting from the exercise of an incentive stock option or an employee stock purchase plan option, or from any disposition of stock acquired by exercising such an option. Report the value of all dependent care assistance you provide to an employee under a DCAP in box 10 of the employee’s Form W-2. Include any amounts you can’t exclude from the employee’s wages in boxes 1, 3, and 5. Report in box 10 both the nontaxable portion of assistance (up to $5,000) and any assistance above that amount that is taxable to the employee. The exclusion for accident and health benefits applies to amounts you pay to maintain medical coverage for a current or former employee under the Combined Omnibus Budget Reconciliation Act of 1986 (COBRA).

  • You can’t exclude from the wages of a highly compensated employee the value of a no-additional-cost service that isn’t available on the same terms to one of the following groups.
  • You must determine the value of any benefit you can’t exclude under the rules in section 2 or for which the amount you can exclude is limited.
  • These include health insurance, life insurance, tuition assistance, childcare reimbursement, cafeteria subsidies, below-market loans, employee discounts, employee stock options, and personal use of a company-owned vehicle.
  • It could also take the form of non-tangible benefits like using the company car, being offered resources like a laptop, or being provided insurance coverage like life or medical insurance.

This section discusses the exclusion rules that apply to de minimis meals and meals on your business premises. The contribution amounts listed above are increased by $1,000 for a qualified individual who is age 55 or older at any time during the year. For two qualified individuals who are married to each other and who are each age 55 or older at any time during the year, each spouse’s contribution limit is increased by $1,000, provided each spouse has a separate HSA. No contributions can be made to an individual’s HSA after he or she becomes enrolled in Medicare Part A or Part B. For more information about employee stock options, see sections 83, 421, 422, and 423 of the Internal Revenue Code and their related regulations. For each employee, you must report in box 12 of Form W-2 using code “GG” the amount included in income in the calendar year from qualified equity grants under section 83(i).

Payment of Fringe Benefits to Apprentices

You must give this notice at or near the date you give the Form W-2, but not earlier than with the employee’s last paycheck of the calendar year. If you overestimate the value of the fringe benefit and overdeposit, you can either claim a refund or have the overpayment applied to your next employment tax return. However, you can apply a prorated annual lease value for a period of continuous availability of less than 30 days by treating the automobile as if it had been available for 30 days. Use a prorated annual lease value if it would result in a lower valuation than applying the daily lease value to the shorter period of availability.

An adoption assistance program is a separate written plan of an employer that meets all of the following requirements. A self-insured plan is a plan that reimburses your employees for medical expenses not covered by an accident or health insurance policy. For more information about cafeteria plans, see section 125 of the Internal Revenue Code and its regulations.


For example, if a waitstaff works during the breakfast and lunch periods, you can exclude from their wages the value of the breakfast and lunch you furnish in your restaurant for each day they work. The Tax Relief and Health Care Act of 2006 allows employers to make larger HSA contributions for a nonhighly compensated employee than for a highly compensated employee. A highly compensated employee for 2023 is an employee who meets either of the following tests. Your plan meets this participation test if it is part of a cafeteria plan (discussed earlier in section 1) and it meets the participation test for those plans.

Is a Lifetime Achievement Award Given to an Employee Taxable?

Automotive & Employee Liability insurance (GAEL) is excluded as well and has a separate rate. For example, a high-ranking supervisor might have more benefits than a temp employee. In addition, permanent employees are more likely to have better benefits than employees on contract. TAS is an independent organization within the IRS that helps taxpayers and protects taxpayer rights.

FAQ on Fringe Benefits

For example, if you’re a household employer, then lodging furnished in your home to a household employee would be considered lodging furnished on your business premises. For special rules that apply to lodging furnished in a camp located in a foreign country, see section 119(c) of the Internal Revenue Code and its regulations. Your plan doesn’t favor key employees as to benefits if all benefits available to participating key employees are also available to all other participating employees.

You may exclude from an employee’s wages the value of any retirement planning advice or information you provide to your employee or their spouse if you maintain a qualified retirement plan. A qualified retirement plan includes a plan, contract, pension, or account described in section 219(g)(5) of the Internal Revenue Code. In addition to employer plan advice and information, the services provided may include general advice and information on retirement. However, the exclusion doesn’t apply to services for tax preparation, accounting, legal, or brokerage services. Salary and fringes is the total amount of compensation that will be paid to an employee.

However, don’t count an employee who chooses not to receive insurance if the employee must pay part or all of the cost of permanent benefits in order to obtain group-term life insurance. A permanent benefit is an economic value extending beyond 1 policy year (for example, a paid-up or cash-surrender value) that is provided under a life insurance policy. Fringe benefits are perks or extra compensation over and above regular salary. Some fringe benefits are for all the employees, whereas others are offered only to certain categories of employees. For instance, the amount of paid time off an employee receives is typically directly proportional with length of employment.

Salaried employee

You don’t have to notify the IRS if you use the special accounting rule. You may also, for appropriate administrative reasons, change the period for which you use the rule without notifying the IRS. But you must report the income and deposit the withheld taxes as required for the changed period. If you underestimate the value of the fringe benefits and deposit less than the amount you would have had to deposit if the applicable taxes had been withheld, you may be subject to a penalty. If an automobile is unavailable to the employee because of the employee’s personal reasons (for example, if the employee is on vacation), you can’t take into account the periods of unavailability when you use a prorated annual lease value. Under this rule, you determine the value of a vehicle you provide to an employee for commuting use by multiplying each one-way commute (that is, from home to work or from work to home) by $1.50.

The plat­form fee for using Fringe is $5 per employ­ee per month (min. plat­form fee is $200/​mo) plus what­ev­er you choose to pro­vide to employ­ees as a ben­e­fit allo­ca­tion (min. $300 per employ­ee annu­al­ly). Fund­ed by their employ­ers, employ­ees are able to select from over 100 inno­v­a­tive and life-sim­pli­fy­ing ser­vices. Unlike tra­di­tion­al ben­e­fits, Fringe ben­e­fits meet needs now.

If you also allow Carol to have meals on your business premises without charge on Carol’s days off, you can’t exclude the value of those meals from Carol’s wages. An employer-operated eating facility for employees is an eating facility that meets all the following conditions. You can exclude the value of lodging you furnish 20+ free itemized receipt templates to an employee from the employee’s wages if it meets the following tests. Your contribution amount to an employee’s HSA must be comparable for all employees who have comparable coverage during the same period. Otherwise, there will be an excise tax equal to 35% of the amount you contributed to all employees’ HSAs.