Fringe benefit

Any fringe benefit is taxable, and belongs in the recipient’s pay, unless the law specifically excludes it. The tax code lists fringe benefits in gross income, alongside fees and commissions. The recipient need not be an employee. Contractors, partners and directors can receive fringe benefits too. A benefit given to a worker’s family member for the worker’s services generally counts as the worker’s.

Section 132(a) lists eight kinds of excluded fringe benefit, and section 132(j) adds on-premises gyms. The eight include working condition and de minimis fringes, qualified employee discounts and qualified transportation fringes. A working condition fringe is something the employee could have deducted as a business expense, had they paid for it. A de minimis fringe, such as occasional coffee or doughnuts, is worth too little to account for, and cash almost never qualifies. Other sections exclude their own benefits, such as dependent care assistance under section 129.

A taxable benefit is generally valued at fair market value, the price the person would pay a third party for it at arm’s length. Special rules can apply instead, such as the cents-per-mile rule for personal use of a company car. The taxable amount is the value, minus any part the law excludes and anything the person paid. So an employee who pays full value has no income from it.

The employer generally sets the value by January 31 of the next year. It reports an employee’s taxable benefits on Form W-2, in box 1 and, where they apply, boxes 3 and 5.