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Record-Keeping Nightmares – Taxable & Non-Taxable Fringe Benefits

Personal use of a company cell phone – not taxable. Taking kids to school in a company vehicle – taxable. Reporting taxable benefits is just one of the innumerable tasks it takes to run a business. Getting ahead of the game to flag and categorize certain expenses will go a long way toward compliance when it’s time to prepare Forms W-2. The following is a list of the most popular taxable and non-taxable fringe benefits:

Taxable

  • Personal use of a company vehicle. If the employee uses the company car for business and personal use, the business records must be documented. Subtract the business use from total use to place a value on the personal use, which is taxable wages. Without business use documentation, the entire use of the vehicle is taxable.
  • Monthly auto allowances are taxable as wages if documentation of business use is missing.
  • Awards, prizes, and bonuses are taxable wages for employees. The same is true whether the award is monetary or non-monetary such as travel, goods, or services. The taxable amount is the fair market value of the non-monetary gift.
  • Moving expense meals are taxable as wages to the employee if they are reimbursed by the company.

Non-taxable

  • Company provided cell phones are considered a working condition fringe benefit, or de minimis fringe benefit. Therefore, the value is not treated as taxable wages. The employer may take a 100% tax deduction for the cost of the phone.
  • Local lodging is not taxable as long as it meets all three criteria: 1) lodging is necessary for the person to participate in a business function, meeting, training, or conference; 2) lodging doesn’t exceed five calendar days nor occur more often than once per quarter; 3) the employer requires the employee to stay overnight for the meeting or function.
  • On-premises meals, gift or food baskets sent to recognize illness, sympathy, or performance, and holiday gifts are not taxable.
  • Supper or supper money provided occasionally so that the employee can work overtime.

You can learn all about what the IRS says about fringe benefits in Publication 15-B. And if your company has recurring expenses that are questionable regarding taxation, ask a Salmon Sims Thomas tax advisor for assistance.