402 Fringe Benefits

A "fringe benefit," generally speaking, is any benefit that is provided to an employee by their employer other than salary or wages. Unless they are exempted in the Internal Revenue Code (IRC), fringe benefits are included in an employee's gross income. When included in gross income, they are processed through the payroll and are subject to income tax and FICA tax withholdings.

Exclusions related to a variety of fringe benefits are addressed in IRC 132. This code section describes six categories of benefits that may qualify for exclusion from the employee's income provided their restrictive criteria are met. The six categories are: (1) no-additional-cost services, (2) qualified employee discount, (3) working condition fringes, (4) de minima fringes, (5) qualified transportation fringes, and (6) qualified moving expenses reimbursements. This code section also establishes exclusionary rules for certain eating facilities and athletic facilities. Some benefits that may be excluded from an employee's income are addressed in other sections of the code. For example education assistance in IRC 117 and 127.

PAYROLL PROCESSING: It is essential that all fringe benefits be carefully examined in advance of being provided to ensure that, if not excluded by the IRC, they are being properly processed through the payroll system, included in the employee's income and that required tax withholdings are being made.
In general, the amount considered income is the amount by which the fair market value of the benefit exceeds the sum of what the employee paid for the benefit plus any amount the IRC excludes.

For more information, please contact the Payroll office in Human Resources.