Fringe Benefits

The most common tax-free fringe benefit employers offer is health insurance.  The second most popular tax-free fringe benefit is retirement benefits (e.g., a 401(k) plan).  But the tax code contains many other items that may be offered to employees on a tax-free basis.  Most of these fringe benefits fall under Section 132 — de minimis benefits, qualified employee discounts, no-additional-cost services, qualified transportation fringes, qualified moving expenses, and employer-provided athletic facilities.  Other fringe benefits include dependent care assistance and educational assistance.  Working condition fringes are separate subsets of fringes that allow you to pay for or reimburse employees for any expense they could deduct under Section 162 (trade or business expenses) and Section 167 (depreciation).  Substantiation rules apply to working condition fringes.  Fringes that can't be excluded from employees' income are usually valued at their fair market value and are fully taxable.