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

Unsafe conditions. Unsafe conditions exist if, under the

on time, make a reasonable estimate of the value of the

facts and circumstances, a reasonable person would con-

fringe benefits provided on the date or dates you chose to

sider it unsafe for the employee to walk or use public

treat the benefits as paid. Determine the estimated deposit

transportation at the time of day the employee must com-

by figuring the amount that you would have had to deposit

mute. One factor indicating whether it is unsafe is the

if you had paid cash wages equal to the estimated value of

history of crime in the geographic area surrounding the

the fringe benefits and withheld taxes from those cash

employee’s workplace or home at the time of day the

wages. Even if you do not know which employee will

employee commutes.

receive the fringe benefit on the date the deposit is due,

you should follow this procedure.

If you underestimate the value of the fringe benefits and

4. Rules for Withholding,

deposit less than the amount that you would have had to

deposit if the applicable taxes had been withheld, you may

Depositing, and Reporting

be subject to a penalty.

If you overestimate the value of the fringe benefit and

Use the following guidelines for withholding, depositing,

overdeposit, you can either claim a refund or have the

and reporting taxable noncash fringe benefits. For addi-

overpayment applied to your next Form 941.

tional information on how to withhold on fringe benefits,

If you deposited the required amount of taxes but with-

see Circular E (Pub. 15), section 5.

held a lesser amount from the employee, you can recover

from the employee the social security, Medicare, or income

Valuation of fringe benefits. Generally, you must deter-

taxes that you deposited on the employee’s behalf and

mine the value of noncash fringe benefits no later than

included on the employee’s Form W-2. However, you must

January 31 of the next year. Before January 31, you may

recover the income taxes before April 1 of the following

reasonably estimate the value of the fringe benefits for

year.

purposes of withholding and depositing on time.

Paying your employee’s share of social security and

Choice of period for withholding, depositing, and re-

Medicare taxes. If you choose to pay your employee’s

porting. For employment tax and withholding purposes,

social security and Medicare taxes on fringe benefits with-

you can treat fringe benefits (including personal use of

out deducting them from his or her pay, you must include

employer-provided highway motor vehicles) as paid on a

the amount of the payments in the employee’s income.

pay period, quarter, semiannual, annual, or other basis.

Also, if your employee leaves your employment and you

But the benefits must be treated as paid no less frequently

have unpaid and uncollected taxes for noncash benefits,

than annually. You do not have to choose the same period

you are still liable for those taxes. You must add the

for all employees. You can withhold more frequently for

uncollected employee share of social security and Medi-

some employees than for others.

care tax to the employee’s wages. Follow the procedure

You can change the period as often as you like as long

discussed under Employee’s Portion of Taxes Paid By

as you treat all of the benefits provided in a calendar year

Employer in section 7 of Pub. 15-A. Do not use withheld

as paid no later than December 31 of the calendar year.

Federal income tax to pay the social security and Medicare

You can also treat the value of a single fringe benefit as

tax.

paid on one or more dates in the same calendar year, even

if the employee receives the entire benefit at one time. For

Special accounting rule. You can treat the value of ben-

example, if your employee receives a fringe benefit valued

efits provided during the last 2 months of the calendar

at $1,000 in one pay period during 2003, you can treat it as

year, or any shorter period within the last 2 months, as paid

made in four payments of $250, each in a different pay

in the next year. Thus, the value of benefits actually pro-

period of 2003. You do not have to notify the IRS of the use

vided in the last 2 months of 2002 would be treated as

of the periods discussed above.

provided in 2003 together with the value of benefits pro-

Transfer of property. The above choice for reporting

vided in the first 10 months of 2003. This does not mean

and withholding does not apply to a fringe benefit that is a

that all benefits treated as paid during the last 2 months of

transfer of tangible or intangible personal property of a kind

a calendar year can be deferred until the next year. Only

normally held for investment, or a transfer of real property.

the value of benefits actually provided during the last 2

For this kind of fringe benefit, you must use the actual date

months of the calendar year can be treated as paid in the

the property was transferred to the employee.

next calendar year.

Limitation. The special accounting rule cannot be

Withholding and depositing taxes. You can add the

used, however, for a fringe benefit that is a transfer of

value of fringe benefits to regular wages for a payroll

tangible or intangible personal property of a kind normally

period and figure income tax withholding on the total. Or

held for investment, or a transfer of real property.

you can withhold Federal income tax on the value of fringe

benefits at the flat 27% rate applicable to supplemental

Conformity rules. Use of the special accounting rule is

wages.

optional. You can use the rule for some fringe benefits but

You must withhold the applicable income, social secur-

not others. The period of use need not be the same for

ity, and Medicare taxes on the date or dates you chose to

each fringe benefit. However, if you use the rule for a

treat the benefits as paid. Deposit the amounts withheld as

particular fringe benefit, you must use it for all employees

discussed in section 11 of Circular E (Pub. 15).

who receive that benefit.

If you use the special accounting rule, your employee

Amount of deposit. To estimate the amount of income

also must use it for the same period that you use it. But

tax withholding and employment taxes and to deposit them

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Publication 15-B Employer'S Tax Guide To Fringe Benefits - 2003 Page 22

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