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Fringe Benefits and the W-2
– December 1, 2008
Here it is near the end of the year and time to start thinking about all those year-end W-2’s. Let’s see now, what goes on the W-2? Oh, yes, the employee’s wages and taxes. Wait, there may be more. Did we pay the employee any taxable fringe benefits this year that need to be included on their W-2?
But what is a fringe benefit? The IRS says, “A fringe benefit is a form of pay for the performance of services.” It can be anything from achievement awards, or personal use of a company vehicle, to tuition reduction and many in between.
Many fringe benefits are excluded from being taxable for employees – such as accident and health benefits, education assistance, employee discounts, athletic facilities, etc. however, others are not. Here is information about several of the taxable fringe benefits.
Personal Use of Company Vehicle
One of the most common taxable fringe benefits is when an employee is allowed to use a company vehicle to commute to and from work and for other personal use. The value of the benefit is subject to all payroll taxes including federal tax, FICA/Medicare and unemployment tax. It has to be included not only on the W-2, but also the other quarterly payroll tax reports.
The amount of the benefit is usually calculated on the lease value of the vehicle and the percentage of its personal use. In some cases, you can use the Cents-Per-Mile method to determine the benefit. You also must consider if the company provides gas and insurance. If so, there is additional benefit.
Group Term Life Insurance
The first $50,000 of group term life insurance is exempt. However the premium for the coverage over $50,000 is subject to all taxes.
2% Shareholders in an S Corporation or an L.L.C.
There are different rules on fringe benefits for those who own 2% or more. For instance, the premium for medical insurance provided for a shareholder or member who owns more than 2% is subject to federal and state tax, but not FICA/Medicare or unemployment tax.
Remember, when completing the W-2, you not only have to include the benefit in the appropriate boxes for wages and tax, but also include the benefit with a notation in box 14.
For more complete information concerning fringe benefits, you can go to the IRS website http://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 be of assistance.
Agnes Forester
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.