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Employee / Fringe Benefits: An Introduction

In order to attract and keep employees, employers may provide substantial benefits in addition to salary. Some of these so-called “fringe benefits” are widely known, while others remain little-understood. In particular, both employers and employees are often uncertain about the tax implications of employee benefits. By understanding the relationship between fringe benefits and tax law, individuals and businesses can avoid paying too much of their income to the IRS.

Common Employee Benefits

Health insurance is perhaps the most well-known kind of employee benefit. In many industries, employees are provided with standard medical insurance policies, and may have the option of dental and vision insurance as well. Employers who provide health insurance to their employees may be able to claim a tax deduction, while employees who have health insurance through their jobs generally do not have to report it as a form of income.

Medical insurance is probably the most well-known example of a tax-free fringe benefit, but it is not the only one. There are numerous employee benefits that may quality for tax-exempt status. These include:

  • Transportation compensation
  • Moving assistance
  • Retirement plans
  • Child care programs
  • Employee discounts

In general, a benefit that an employer provides to an employee is not subject to taxation. However, to quality for deductions, employers may need to carefully report the expenses on their tax returns. Employees may also need to provide receipts and other documentation of the assistance when taking a deduction for an employer-provided activity.

Contact an Attorney

If you have questions about claiming employee benefits as tax deductions, complete our easy-to-use contact form. This form will help connect you with an experienced tax attorney who can give you more information about the tax status of employee benefits.