A fringe benefit is a form of pay for the performance of services. Additional fringe benefits can be deducted for employees, including owner-employees.
Commonly referred to as fringe benefits, fringe benefits tax deduction and employee fringe benefits.
Do I Qualify for the Fringe Benefits?
There are various types of employee fringe benefits an employer can offer that are eligible for the fringe benefits tax deduction.
2022 Fringe Benefits Details
There are various types of employee fringe benefits an employer can offer that are eligible for the fringe benefits tax deduction. Below are a few examples:
• Disability insurance that is taxable but exempt from FICA and unemployment
• Group term life insurance up to $50,000 for regular non-shareholder employees
• Working condition benefits, such as a corporate car and smartphone
• Job-related education
• De minimis benefits, such as the use of a company copy machine, small gifts, occasional parties and picnics, occasional theater or sporting events and benefits from points and miles programs.
Tax Cuts and Jobs Act Impact on Fringe Benefits
Many fringe benefits were eliminated or suspended by the Tax Cuts and Jobs Act, such as:
• Expenses related to entertainment, amusement and recreation
• Qualified expenses for transportation, parking, commuter passes or bicycle commuting (with an exception where the transportation expenses are necessary for employee safety)
• Qualified expenses for moving (must be included in employee wages, with an exception for active duty military members)
Taxpayers can, however, continue to deduct 50 percent of the cost of business meals if the taxpayer or an employee of the taxpayer is present during the meal.
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• Relatively low cost for businesses to implement and highly valued by employees and recruits
• Can also be applied to owner-employees
• Reduced taxable income
• Reduced self-employment tax
• Additional record keeping
• May only qualify for deduction if administered via a qualified plan (These can take some time and money to create and manage, and they add complexity to the business’ bookkeeping.)
Assumptions When Taking the Fringe Benefits
• Even if they haven’t been deducted in the past, most businesses probably provide some benefits that could qualify for the fringe benefits tax deduction. If not, these programs are relatively easy to create.
• None noted.
Requirements to Claim the Fringe Benefits
• If the owner plans to deduct the cost of employee fringe benefits provided, they must be related to the business. Most will meet that qualification as compensation paid to attract and retain employees.
Business Entities That Can Claim the Fringe Benefits
• Schedule C
• Schedule F
• S Corporation
• C Corporation
The material discussed on this page is meant for general illustration and/or informational purposes only and is not to be construed as investment, tax, or legal advice. You must exercise your own independent professional judgment, recognizing that advice should not be based on unreasonable factual or legal assumptions or unreasonably rely upon representations of the client or others. Further, any advice you provide in connection with tax return preparation must comply in full with the requirements of IRS Circular 230.