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December 8, 2017 | HRIS | Posted by Ascentis Thought Leadership

Do Not Forget to Tax These Employee Benefits Before Year-End is Complete

Year-end is a critical time for HR and payroll departments to complete numerous processes, meeting compliance and regulatory requirements. Under-reported and non-taxed fringe benefits is an area of taxable income that has been often overlooked and even misunderstood by many businesses.

Don't Risk a Tax Audit

If you’re confused about how fringe benefits are defined by IRS tax law, let alone how they are taxed, you’re not alone. In 2014 alone, the IRS imposed $6,848,308 in civil penalties for non-compliance of the proper payment and reporting of employment taxes, including those from fringe benefits. The IRS is working diligently to decrease the amount of uncollected revenues. As a result the probability that your business will be involved in an employment tax audit has never been greater.

Before year-end it is recommended that HR and payroll teams audit fringe benefits that need to be reported on the 2017 W-2. Review your accounts payable and general ledger records for possible unreported taxable items from tax year 2017 including, but not limited to:

  • Benefits that exceed monetary thresholds—dependent care assistance in excess of $5,000, group-term life insurance in excess of $50,000, educational assistance in excess of $5,250; monitor for these thresholds
  • Expense reimbursements or payments made to third-parties for non-qualified moving expenses
  • Meal expenses employees incurred while traveling
  • Employer-paid student loan payments
  • The fair market value of individual gym memberships, regardless of any applicable corporate discount
  • The fair market value of health benefits provided to employees’ domestic partners or civil union partners of either gender
  • Dependent group-term life insurance, when the policy exceeds $2,000
  • Group-term life insurance greater than $50,000 provided to retirees
  • The amount of forgiven loans
  • Employee recognition awards that are more than de minimis benefits (e.g., all-expense-paid trips, gift certificates)
  • Employee safety awards, prizes, referral bonuses and suggestion awards
  • The fair market value of unrestricted gift certificates or gift cards
  • Employees’ personal use of company vehicles. For company cars only, income tax withholding is optional. If you choose not to withhold, notify employees that you haven’t withheld and include 100% of the value of their business and personal use in the appropriate boxes on their Forms W-2

With more than 35 years of experience in providing Software as a Service (SaaS) solutions, Ascentis thought leaders have become a respected source for insights, tips, and innovations in the Human Capital Management (HCM) space.