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Don't Forget About Fringe Benefits
– November 19, 2009
Hard to believe, but here it is time to start thinking about preparing W-2's again. Before you start preparing 4th quarter and annual payroll reports, don't forget to include the taxable fringe benefits on both forms.
Oh, but, what is a fringe benefit? Well, a fringe benefit is a form of pay, other than direct salary, that you provide for your employees. This can be not only for an employee, but even a member of the employee's family. Most benefits are not taxable, however some are.
Personal Use of Company Vehicle
The most common taxable benefit is the personal use of a company vehicle. It doesn't matter if the vehicle is leased or owned by the company, if an employee uses it to commute to and from work or has it for his own personal use, it is a taxable benefit to him and should to be reported. The value of the benefit is subject to all payroll taxes including federal, state, FICA/Medicare and unemployment tax.
The amount of the benefit is usually calculated on the lease value of the vehicle and the percentage of his personal use. In some cases, you can use the Cents-Per-Mile method to determine the benefit. Also take into consideration if the company provides gas and insurance. If so, this is an additional benefit.
Insurance for 2% Shareholders in an S Corporation or an L.L.C. and Certain Highly Compensated Employees
In most cases health insurance and Group Term Life Insurance are not taxable to employees; however there are different rules for those who own 2% or more of an S corporation and some highly compensated employees.
For these employees:
- the premium for accident and health insurance provided is subject to federal and state tax as well as FICA/Medicare
- the premium for the first $50,000 of group term life insurance is exempt. However the premium for the coverage over $50,000 is subject to FICA and Medicare
Reporting the Fringe Benefit
When completing the W-2 you not only have to include the information in the boxes for wages and taxes, but also include the benefit amount with the proper notation in box 14.
If the recipient of a taxable fringe benefit is not your employee, the benefit is not subject to employment taxes; however it still must be reported. If the recipient is a contractor the benefit would be reported on a 1099-Misc, or if the recipient is a partner it would be reported on a K-1 of the tax return.
For more complete information concerning fringe benefits, you can go to the IRS website www.irs.gov to print out Publication 15-B, Employer's Tax Guide to Fringe Benefits. Of course we will always be here to help you. You may contact our Accounting Services Department and we will be glad to assist you.
Agnes Forester
Accounting Services
318.429.2076
aforest@hmvcpa.com
Agnes has been with Heard, McElroy & Vestal for almost 20 years and is the Department Coordinator for the firm's Accounting Services department.