Fringe Benefits: What You Need to Know

As an employer, you want to ensure your employees are happy and thriving in your business. From time to time, you may even reward them for a job well done. But before you give a reward that’s outside the scope of their pay rate, think twice.

Welcome to the world of fringe benefits.

What are fringe benefits?

Fringe benefits are any form of payment that is considered compensation beyond your employee’s normal pay rate. This could include property, services or cash.

Why do I need to think twice?

Often, fringe benefits are taxable to the employee. And if it’s taxable, you have to report it on the employee’s W-2.

Fringe benefits that are taxable include:

  • Vacations
  • Personal use of an employer-provided vehicle
  • Gym memberships
  • Bonuses
  • Moving expenses (those in excess of your qualified expenses)
  • Group term life insurance
  • Gift cards

This is by no means an exhaustive list, but it should at least get you thinking.

What else do I need to know?

When we talk about fringe benefits, we’re often talking about value. The IRS has a little rule called de minimis fringe benefit, otherwise known as “one for which, considering its value and the frequency with which it is provided, is so small as to make accounting for it unreasonable or impractical.”

In other words, when you talk about value in regard to de minimis fringe benefits, if the benefit is so small it makes reporting it impractical, you don’t have to worry about it. And before you ask, there’s no specific dollar amount given.

One thing to remember is that cash or cash-equivalent gifts are NEVER non-taxable. For example, gift cards have an easily ascertainable value and can be redeemed for merchandise or a cash equivalent. So they need to be reported as part of an employee’s wages.

If you give items that are not cash, you will more than likely utilize fair market value. For instance, say you have a drawing during your company holiday party and an employee wins a 60 inch TV. This would not be considered de minimis and would need to be included in their income so taxes could be withheld. In this instance you can easily ascertain the value of the TV.

In the above example, you utilize fair market value. However, there are items that don’t have an easily discernible value. In that case, look at what a willing buyer would pay for that particular item. If you need a little more help, the IRS lays out guidelines for the valuation of certain items, like the lease of an employer-provided vehicle. You can find more information on that here.

So what would be considered de minimis?

So what would be considered de minimis? An example would be giving each of your employees a T-shirt, turkey, or something similar in value. The key here is that it HAS to be something tangible (as a reminder, this doesn’t mean cash or anything with a value attached … even a $5 gift card counts).

The moral of the story?

Fringe benefits are a great way to reward your employees and help you stand out from your competition. However, you need to be careful that you’re actually reporting these benefits as part of your employee’s wages.

1099 Reminder

Way back in July, we taught you the basics of the 1099 forms. Now that the deadlines for these forms are coming into view, we thought we would give you some tips and helpful reminders for getting them filled out.

Wait, what are these for again?

The most common type of 1099, the 1099-MISC, needs to be completed for anyone who has provided services to you amounting to $600 or more. This can be anything from accounting services to snow removal – if it was $600 or greater worth of work, it goes on the 1099-MISC. However there are a few exceptions to the rule (go figure!). A 1099-MISC isn’t required if:

  • The company providing the services is incorporated – except with lawyers.
  • The person who provided services is your employee.
  • The amount of services provided is less than $600 worth.

Do I need to report anything else on the form?

The 1099-MISC requires you to report any rent paid to an individual or business that isn’t incorporated. It also requires you to report royalties of $10 or more and any other income payments such awards and prizes, and even employee wages paid after death. In other words, most miscellaneous payments are reported on the 1099-MISC.

Any other forms I should know about?

Another common 1099 is the 1099-INT. This form focuses on – you guessed it – interest reporting. Any interest paid amounting to $10 or more, any foreign tax and interest or backup federal withholdings – regardless of the interest payment amount — must be reported on this form.

So, when are they due?

Depending on the type of form you are filing, the due dates may vary. The IRS website gives a great picture of when each form is due. You can check it out here.

Anything else I should know before I get to work filling these out?

As always, these forms are more complex than meets the eye, and this list of items to include is not all-inclusive. Our pals at the IRS do a great job of explaining them, and we’ve also crafted a handy blog to help you get a picture of what these forms include.

We’re hopeful these reminders will give you the information (see what we did there?) you need to fill out the 1099. If your head is still spinning, let us know. We’re always here to help!

Taxable v. Nontaxable Income

Tax season will be here soon, which means your friendly numbers nerds are getting ready! From balance sheets to calculators and everything in between, this is a busy time of year with a lot of moving parts. Tax day, Tuesday, April 17th, will be here in just 162 days. It’s a good idea to think ahead.

When it comes to income, it’s a fairly safe bet to assume it will be taxed. For example, salaries, bonuses, interest and business income are almost always taxable. However, there are some exceptions when it comes to what is and isn’t taxable. This stuff is important to know – different types of income can greatly impact your tax strategies for the upcoming year.

Everyone earns income in some shape or form, and knowing when you should and shouldn’t be paying tax is a must. As a business owner, it’s also important to realize what your employees may need to report on their tax filings, and how this might impact your business’ tax strategy.

To help you with your tax planning, we’re here to help break down which forms of income may be taxable.

The following types of income are taxable, and need to be reported properly:

  • Benefits from unemployment
  • Punitive damages
  • Income from bartering, which is based on the fair market value of the product or service you receive
  • Disability insurance income – if your employer paid the premiums
  • Fringe benefits you receive for performance of your services – think wellness benefits, company car use, etc.
  • Rent payments you receive for personal property – if you are operating your rental activity as a business
  • Gambling winnings and cash prizes

However, not everything is taxable. Here are some of the nontaxable types of income:

  • Workers’ compensation benefits – unless they are part of your retirement package
  • Disability insurance income – if you paid the premiums
  • Compensatory damages for getting sick or being injured
  • Cash rebates from the dealer or manufacturer of a service or product
  • Excluded fringe benefits, such as health insurance, parking and employee discounts
  • Child support payments
  • Rent money if you rent out your primary or vacation home fewer than 15 days a year. This is important to note if you use popular vacation rental sites, such as Airbnb and HomeAway. Also, note that if you rent it out more than 14 days, the activity is taxable.
  • Gifts and inheritances – if your great-great uncle passes away and leaves you his massive stamp collection, lucky you – no income tax!

It’s important to keep in mind these lists don’t include every taxable and nontaxable type of income under the sun, and there are often rules and exceptions that may apply. If you get confused, or aren’t sure if you should really be reporting something, check in with us. We’re here to help.

A version of this post first appeared in Eide Bailly’s Year End Tax Planning Guide.