What is IRS Publication 15-B, Employer's Tax Guide to Fringe Benefits?

The IRS Publication 15-B or the Employer's Tax Guide to Fringe Benefits is a document published by the Internal Revenue Service (IRS) that provides employers with guidance on how to account for additions to compensation given to employees when filing taxes. Fringe benefits refer to non-cash benefits provided to persons who perform services for a business, and can include perks such as the use of a company car.

For employees, the company will report the value of any fringe benefit on the employee's W-2. For non-employees, companies should report the value of benefits using Form 1099-MISC or Schedule K-1.

Understanding IRS Publication 15-B, Employer's Tax Guide to Fringe Benefits

IRS publication 15-B, Employer's Tax Guide to Fringe Benefits is one of many guides the IRS publishes to help companies understand their filing responsibilities. As the title suggests, Publication 15-B outlines taxes regarding fringe benefits. Fringe benefits offer additional compensation to employees above and beyond an agreed-upon wage or salary. Fringe benefits are only tax-exempt if they are explicitly excluded by tax law. Recipients of taxable fringe benefits have to include the fair market value of the benefit in their taxable income for the year.

Key Takeaways

  • IRS Publication 15-B or the Employer's Tax Guide to Fringe Benefits is a guide that employers use to learn how to file the fringe benefits they provide to their employees.
  • Fringe benefits can also be provided for non-employees like independent contractors, and these too must be reported for tax purposes.
  • Most fringe benefits are taxable unless they have been specifically been made tax-exempt by law.
  • Fringe benefits are to be reported at fair market value, meaning that the person receiving the benefit reports its value in-line with what he or she would have to pay a third party for it.

IRS Publication 15-B provides an overview makes three key clarifications about fringe benefits. One, a person performing a service for you doesn't have to be an employee in the traditional sense. Providing a car to an independent contractor or member of the board of directors, for example, would count as a fringe benefit. Two, you are considered the provider of the benefit even if a third party, like a client of your business, provides the fringe benefit to your employees. The example the guide gives is a day care service that provides your employees with childminding in exchange for goods or services from your business. Three, the person who performs services for you (usually your employee) is considered the recipient of the benefit for tax purposes even if it is a family member receiving/utilizing the benefit.

Which Fringe Benefits are Taxable?

The IRS generally considers fringe benefits taxable, but there are exceptions. The IRS considers some cafeteria plan benefits, typically those involving health care for employees, as pre-tax. Most fringe benefits that are income tax-exempt are also exempt from Social Security, Medicare and federal unemployment taxes, but not all. Adoption assistance is exempt from income tax only, for example.

Whether a fringe benefit is tax-exempt depends on the type and, in some cases, the value of the benefit. By default, the IRS taxes all fringe benefits unless they are specifically named as being tax-exempt. Accident and health benefits, commuting benefits, dependent care assistance, educational assistance, employee discounts, health savings accounts (HSA), and retirement planning services are some examples of fringe benefits the IRS considers tax-exempt. Many of these have caps, as with educational assistance, for example, which is only exempt up to $5,250 annually. Other fringe benefits like amounts paid in excess of expenses for moving, use of a company vehicle, or coverage of vacation expenses are taxable no matter the dollar amount.

How are Fringe Benefits Valued?

In general, fringe benefits are valued at fair market value. This is the amount the employee would pay for the same benefit in a third-party, arms-length transaction. All relevant circumstances, such as geographic area and current market conditions, must be taken into account. The fair market value may be different from the actual cost to the employer of providing the benefit, but that does not affect the valuation.