Fringe benefits are perks provided by an employer in addition to regular wages. They may be taxable, partially taxable, or excludable depending on IRS rules. Employers must correctly value and report taxable benefits as part of payroll.
Examples of fringe benefits
Cash or noncash awards
Personal use of company property
Subsidized commuting or parking
Company-provided memberships or entertainment
Employer-provided vehicles
Tax treatment
By default, fringe benefits are considered taxable wages unless specifically excluded by law (IRC §61).
The taxable value is based on the fair market value (FMV) of the benefit, less any amount the employee paid or exclusions allowed.
Taxable fringe benefits are subject to federal income tax withholding, Social Security, Medicare, and FUTA.
Reporting requirements
Reporting Item | Notes |
When to report | At the time the benefit is provided, or no later than December 31 of the same year |
Form W-2 | Add taxable amount to employee wages |
Withholding and deposits | Follow employer’s normal payroll deposit schedule |
FIT withholding | Optional, but employees must be notified by January 31 if not withheld |
Common excludable benefits
Some benefits are excluded from taxable wages if they meet IRS rules, including:
De minimis benefits (e.g., occasional snacks, small gifts)
No-additional-cost services (e.g., free standby flights for airline employees)
Qualified employee discounts
On-premises athletic facilities
Qualified awards (length of service or safety), up to IRS limits ($400 nonqualified / $1,600 qualified per year)
Employer-provided vehicles
If employees use company vehicles for personal reasons, the value must be included as taxable wages unless the vehicle qualifies as a “qualified nonpersonal use vehicle” (e.g., police cars, school buses). Employers may use IRS-approved valuation methods such as the commuting rule, annual lease value, or cents-per-mile method.
Need help?
If you have questions or need assistance, please contact Salaris Payroll Support. We’re here to help.