Fringe Benefit Season

October 2014

Human resources departments soon will begin their annual calculation of fringe benefits to be disclosed on employee W-2 reports.

Common fringe benefits include:

  • Most gifts or awards
  • Excess term life insurance, i.e., more than $50,000 of coverage
  • Employer-paid individual life insurance policies
  • Self-employed health insurance premiums for S corporation shareholders
  • Personal use of business automobiles
  • Certain employee discounts
  • Moving expense reimbursements
  • Military differential pay
  • Sick pay
  • Adoption assistance benefits
  • Archer MSA or HSA contributions

A provision in the Patient Protection and Affordable Care Act now requires large employers—those with 250 or more employees—to disclose the value of employer-provided health insurance coverage as an informational item on each employee’s 2014 W-2.

Employers who give employees holiday gifts, e.g., cash, gift cards, turkeys, are in general required to include the gift in the employee’s taxable compensation. Employers should be aware the IRS has ruled employer-provided holiday gift coupons redeemable at grocery stores are wages subject to payroll taxes. The IRS also has ruled fringe benefits for a more-than-2-percent shareholder in an S corporation must be reported on Form W-2.

Employee life insurance premiums paid by an employer are taxable to the employee if the proceeds are payable to the employee’s beneficiary.

There are several safe harbor calculation methods for personal use of a business vehicle. Employers can collect information on a November 1 to October 31 basis to facilitate fringe benefit calculations for calendar year-end reporting purposes. Your tax advisor can help you determine which forms you need to collect information from employees and calculate these benefits.

Fringe benefits have a variety of associated employment taxes. Some benefits are subject to FICA and Medicare; some also are subject to federal income tax withholding. It's important for employers using payroll service providers to complete and report fringe benefit calculations prior to December 31 to avoid costly amended payroll reports. 

If you have a question on fringe benefits, contact your BKD advisor.

Download the 2014 Year-End Tax Advisor here!

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