What Employee Benefits Are Taxable?
In addition to a paycheck, many employers provide certain “fringe benefits.” This can include things like child care, medical insurance, and retirement planning services. Some items are completely exempt while others are only exempt up to a certain amount.
If an employee is provided with a benefit that is not excluded by a specific tax code and is not paid for by the employee, it is considered a taxable benefit.
What Employee Benefits Are Not Taxable?
Certain fringe benefits that are provided to an employee are not taxable and should not be reported on your W-2. Examples include:
- Tuition reimbursement: If your business participates in an education program and agrees to reimburse an employee for tuition, that payment is not taxable income.
- Employer lodging: If you provide housing for an employee for business purposes and certain requirements are met, the rent amount cannot be included on an employee’s taxes.
- Services and discounts: If you have a partnership with a telephone company and employees receive 20% off phone bills, for example, the money saved is not taxable.
- Random perks: The occasional office lunch shouldn’t go on and employee’s W-2.
What Employee Benefits Are Tax Deductible?
Many fringe benefits that you offer your employees can be deducted from the expenses of running a business. It can be a win-win situation, but make sure you’re aware of restrictions and guidelines when claiming deductions. The following are benefits that may be tax deductible:
- Health insurance
- Retirement plans
- Services and discounts
- Random perks
- Dependent care assistance
- Educational assistance/tuition reduction
- Life insurance
- Health savings accounts (HSAs)
- Commuting benefits