Welcome to our Business Taxes blog series! We’ve been talking about all of the different taxes a business might be required to pay if it has employees. These taxes are also known as employment taxes or payroll taxes.
In our last few posts, we’ve started talking about some of the different components and considerations your business will want to keep in mind when it comes to the business taxes you might come across if you own or operate a business with employees. In our most recent blogs, we’ve covered the basics of Unemployment Insurance, Workers’ Compensation and the employment tax benefits of Employee Health Plans. In the posts preceding those, we covered the different types of employees your business might employ, like 1099 Independent Contractors, W-2 Employees and Seasonal or Part Time Workers and the different tax responsibilities associated with each. If you’re new to the series, you can get started learning all of the above with our introductory blog post: Business Taxes: Employment Taxes.
For those of you who are caught up in the series, in this post we’ll be discussing what the IRS calls ‘fringe benefits.’ So let’s start at the beginning.
What are fringe benefits?
As of January 31st, 2021, according to the IRS Page Publication 15-B (2020), Employer’s Tax Guide to Fringe Benefits, “a fringe benefit is a form of pay for the performance of services. For example, you provide an employee with a fringe benefit when you allow the employee to use a business vehicle to commute to and from work.”
To get an even clearer picture, we turned to the dictionary. The Oxford Languages/Google English Dictionary defines fringe benefits as “an extra benefit supplementing an employee’s salary, for example, a company car, subsidized meals, health insurance, etc.”
Depending on which industry you work in, these types of fringe benefits might be commonplace or they might be rare. But for those of you who operate businesses that do provide fringe benefits to your employees, we’ll discuss the business tax ramifications next.
Employment taxes and fringe benefits
As of January 31st, 2021, according to the IRS Page Employee Benefits, “Fringe benefits are generally included in an employee’s gross income (there are some exceptions). The benefits are subject to income tax withholding and employment taxes. Fringe benefits include cars and flights on aircraft that the employer provides, free or discounted commercial flights, vacations, discounts on property or services, memberships in country clubs or other social clubs, and tickets to entertainment or sporting events.”
Because fringe benefits are subject to income tax withholding and employment taxes, it’s very important that employers keep track of these benefits! The same IRS Page from the previous excerpt, Employee Benefits, as of January 31st, 2021, continues on to say that “in general, the amount the employer must include is the amount by which the fair market value of the benefits is more than the sum of what the employee paid for it plus any amount that the law excludes. There are other special rules that employers and employees may use to value certain fringe benefits. See Publication 15-B, Employers’ Tax Guide to Fringe Benefits, for more information.”
This last piece of information can be a little confusing. If your business needs any help with employment taxes, payroll taxes or any other type of business tax resolution services, feel free to give the team of highly trained tax resolution specialists at Bullseye Tax Relief a call today! We offer a free initial consultation and transcript analysis to all new clients. We can be reached at (844) 582-3323.
Sources:
https://www.irs.gov/publications/p15b
https://www.irs.gov/businesses/small-businesses-self-employed/employee-benefits