Tax Guide

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Fringe Benefits and Your Taxes

Fringe benefits are valuable freebies for employees. For employers … well, they wouldn't offer them if they didn't get something in return. Let's take a look a few popular fringe benefits and how they might affect the employee's taxes. 

Employer-Provided Educational Assistance

If you get educational benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits from your reported income each year. You’ll have to pay income tax on anything more than that amount.

If the benefits over $5,250 also qualify as a working condition fringe benefit, your employer does not have to include them in your wages. This is a benefit which, had you paid for it, you could deduct as an employee business expense.

To qualify as an educational assistance program, the plan must be written and it must meet certain other requirements. Tax-free educational benefits include payments for tuition, fees, books, supplies and equipment.

Such benefits do not include meals, lodging or transportation; tools or supplies (other than textbooks) that you can keep after completing the course; or courses involving sports, games or hobbies (unless they have a reasonable relationship to the business of your employer or are required as part of a degree program).

The courses covered under this provision generally include any instruction or training that improves or develops your capabilities. The payments do not have to be for work-related courses or courses that are part of a degree program.

Employer-Provided Vehicles

If a vehicle is provided for your use, the amount that can be excluded as a working condition fringe benefit is the amount that would be allowable as a deductible business expense if you paid for its use.

If you use the vehicle for personal as well as business use, the value of the benefit is the part that’s for business use of the vehicle. Sometimes, instead of excluding the working condition fringe benefit amount, the entire annual lease value of the vehicle is included in your wages. You can then claim any deductible business expense for the vehicle as an itemized deduction on your taxes.

Other Employer-Provided Fringe Benefits

Several other common fringe benefits are generally not taxable to the employee, provided the employer has a substantial business reason for providing them. These include:

  • Employer-provided cell phone, as well as similar items, if the employer benefits from your use, such as being able to reach you outside normal work hours.
  • Employer-paid subscriptions or memberships
  • Job-placement assistance, if it's to help you get a job in the same field
  • Several minor or de minimus benefits, such as food, local lodging and transportation, use of company facilities and equipment, etc.
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