Publication 15-B Employer'S Tax Guide To Fringe Benefits

Revenue Bulletin 2002-16 at

Including taxable benefits in pay. You must include in a

irb02-16.pdf.

recipient’s pay the amount by which the value of a fringe

benefit is more than the sum of the following amounts.

•

Any amount the law excludes from pay.

Introduction

•

Any amount the recipient paid for the benefit.

This publication supplements Circular E (Pub. 15),

The rules used to determine the value of a fringe benefit

Employer’s Tax Guide, and Publication 15-A, Employer’s

are discussed in section 3.

Supplemental Tax Guide. It contains specialized and de-

tailed information on the employment tax treatment of

If the recipient of a taxable fringe benefit is your em-

fringe benefits.

ployee, the benefit is subject to employment taxes and

must be reported on Form W-2, Wage and Tax Statement.

Comments and suggestions. We welcome your com-

However, you can use special rules to withhold, deposit,

ments about this publication and your suggestions for

and report the employment taxes. These rules are dis-

future editions. You can e-mail us while visiting our web

cussed in section 4.

site at You can write to us at the following

If the recipient of a taxable fringe benefit is not your

address:

employee, the benefit is not subject to employment taxes.

Internal Revenue Service

However, you may have to report the benefit on one of the

Tax Forms and Publications

following information returns.

W:CAR:MP:T

1111 Constitution Ave. NW

If the recipient

Washington, DC 20224

receives the benefit as:

Use:

We respond to many letters by telephone. It would be

An independent contractor

Form 1099-MISC

helpful if you would include your daytime phone number,

A partner

Schedule K-1 (Form

including the area code, in your correspondence.

1065)

An S corporation shareholder

Schedule K-1 (Form

1. Fringe Benefit Overview

1120S)

A fringe benefit is a form of pay for the performance of

For more information, see the instructions for the forms

services. For example, you provide an employee with a

listed above.

fringe benefit when you allow the employee to use a

business vehicle to commute to and from work.

Cafeteria Plans

Performance of services. A person who performs serv-

A cafeteria plan, including a flexible spending arrange-

ices for you does not have to be your employee. A person

ment, is a written plan that allows your employees to

may perform services for you as an independent contrac-

choose between receiving cash or taxable benefits instead

tor, partner, or director. Also, for fringe benefit purposes,

of certain qualified benefits for which the law provides an

treat a person who agrees not to perform services (such as

exclusion from wages. If an employee chooses to receive a

under a covenant not to compete) as performing services.

qualified benefit under the plan, the fact that the employee

could have received cash or a taxable benefit instead will

Provider of benefit. You are the provider of a fringe

not make the qualified benefit taxable.

benefit if it is provided for services performed for you. You

Generally, a cafeteria plan does not include any plan

may be the provider of the benefit even if it was actually

that offers a benefit that defers pay. However, a cafeteria

furnished by another person. You are the provider of a

plan can include a qualified 401(k) plan as a benefit. Also,

fringe benefit that your client or customer provides to your

certain life insurance plans maintained by educational in-

employee for services the employee performs for you.

stitutions can be offered as a benefit even though they

defer pay.

Recipient of benefit. The person who performs services

for you is the recipient of a fringe benefit provided for those

Qualified benefits. Qualified benefits include the follow-

services. That person may be the recipient even if the

ing benefits discussed in section 2.

benefit is provided to someone who did not perform serv-

•

ices for you. For example, your employee may be the

Accident and health benefits (but not medical sav-

recipient of a fringe benefit that you provide to a member of

ings accounts or long-term care insurance).

the employee’s family.

•

Adoption assistance.

•

Are Fringe Benefits Taxable?

Dependent care assistance.

•

Group-term life insurance coverage (including costs

Any fringe benefit that you provide is taxable and must be

that cannot be excluded from wages).

included in the recipient’s pay unless the law specifically

excludes it. Section 2 discusses the exclusions that apply

to certain fringe benefits. Any benefit not excluded under

Benefits not allowed. A cafeteria plan cannot include

the rules discussed in section 2 is taxable.

the following benefits discussed in section 2.

Page 2

Publication 15-B Employer'S Tax Guide To Fringe Benefits - 2003 Page 2

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