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

5) Receives pay of not more than $80,000 during the

You must withhold the applicable income, social secur-

year.

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

treat the benefits as paid. Deposit the amounts withheld as

However, an employee is not considered a qualified em-

discussed in section 11 of Circular E.

ployee if you do not comply with the recordkeeping require-

ments concerning the employee’s wages, hours, and other

Amount of deposit. To estimate the amount of income

conditions and practices of employment under section

tax withholding and employment taxes and to deposit it on

211(c) of the 1938 Act and the related regulations.

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

benefits provided on the date or dates you chose to treat

Unsafe conditions. Unsafe conditions exist if, under the

the benefits as paid. Determine the estimated deposit by

facts and circumstances, a reasonable person would con-

figuring the amount you would have had to deposit if you

sider it unsafe for the employee to walk or use public

had paid cash wages equal to the estimated value of the

transportation at the time of day the employee must com-

fringe benefits and withheld taxes from those cash wages.

mute. One factor indicating whether it is unsafe is the

Even if you do not know which employee will receive the

history of crime in the geographic area surrounding the

fringe benefit on the date the deposit is due, you should

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

follow this procedure.

employee commutes.

If you underestimate the value of the fringe benefits and

deposit less than the amount you would have had to

deposit if the applicable taxes had been withheld, you may

4. Rules for Withholding,

be subject to a penalty.

If you overestimate the value of the fringe benefit and

Depositing, and Reporting

overdeposit, you can either claim a refund or have the

overpayment applied to your next Form 941.

Use the following guidelines for withholding, depositing,

If you deposited the required amount of taxes but with-

and reporting taxable noncash fringe benefits.

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 you deposited on the employee’s behalf and in-

mine the value of noncash fringe benefits no later than

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

January 31 of the next year. Prior to 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.

Choice of period for withholding, depositing, and re-

Paying employee share of social security and Medi-

porting. For employment tax and withholding purposes,

care taxes. If you choose to pay the employee’s social

you can treat fringe benefits (including personal use of

security and Medicare taxes on fringe benefits without

employer-provided highway motor vehicles) as paid on a

deducting them from pay, you must include the amount of

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

the payments in the employee’s income. Also, if your

But the benefits must be treated as paid no less frequently

employee leaves your employment and you have unpaid

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

and uncollected taxes for noncash benefits, you are still

for all employees. You can withhold more frequently for

liable for these taxes. You must add the uncollected em-

some employees than for others.

ployee share of social security and Medicare tax to the

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

employee’s wages. Follow the procedure discussed under

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

Employee’s Portion of Taxes Paid By Employer in sec-

paid no later than December 31 of the calendar year.

tion 8 of Publication 15-A. Do not use withheld Federal

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

income tax to pay the social security and Medicare 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 2002, 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 2002. You do not have to notify the IRS of the use

vided in the last 2 months of 2001 would be treated as

of the periods discussed above.

provided in 2002 together with the value of benefits pro-

vided in the first 10 months of 2002. This does not mean

Transfer of property. The above choice for reporting

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

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

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

transfer of tangible or intangible personal property of a kind

the value of benefits actually provided during the last 2

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

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

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

next calendar year.

the property was transferred to the employee.

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

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Publication 15 B - Employer'S Tax Guide To Fringe Benefits - 2002 Page 22

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