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Table of Content

Guidelines to employee fringe benefits tax

Overview of employee's fringe benefits tax

An employee fringe benefit tax is usually a taxation which is levied on goods and services that are provided to an employee by the employer and is not included in the regular pay. It is for this reason that most of these benefits are taxable. Some of the common fringe benefits include a company car and a private accommodation that is offered by the employer for non-work related purposes. There are also some additional perks that are given by companies as a reward for their outstanding work. These are taxable as not all employees receive them. However, there are benefits that are not taxed such as free parking and cafeteria services, as all employees receive them.

Employee fringe benefits tax returns

The employer is supposed to include the benefit offered to the employee on the tax form that is submitted to the federal tax body. It is essential for the employer to know the taxable value of the benefit provided in order for the relevant rate of taxation to be applied. At times, the tax which is levied on the fringe benefit depends on how the benefit is used. For instance, a car that is provided by the company may not be taxed when it is used for business purposes. Where the recipient of the benefit is an employee of the company, the benefit should be reported on the Form W-2, Wages and Tax Statement. Where the recipient is not an employee of the company, the benefit is not subjected to employment tax. However, this should be reported in form 1099-MISC, for independent contractors and Schedule K-1 in form 1065, for partners.

Employee fringe benefits that are non taxable

There is a major exception to the rule that you must pay tax on any benefit that is provided by the employer. Tax is not payable on a value of a fringe benefit that is already tax qualified. Some of these benefits include reimbursement for medical expenses, health insurance, dental insurance, assistance for day care, transport allowance and dental insurance. Any benefit that is tax qualified is free from state and federal income tax, Medicare and social security taxes. The tax savings do make the fringe benefit to be attractive to the extent that employees choose to forego part of their salaries to get them.

Valuation of the employee fringe benefit

In order to determine the value of the employee fringe benefit, you should use the general valuation rule. According to this rule, the value of the benefit should be its fair market value. This is an equivalent of the amount an employee is likely to pay to a third party to lease or buy the benefit. Incase of a vehicle that is provided by the employer, its value should be an equivalent of the amount that would be payable to a third party to lease a similar or the same car on terms that are comparable and in the same geographical area where the vehicle is used.

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