Fringe Benefits: The Hidden Tax Implications of Workplace Perks

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Taxing the Extras: Fringe Benefits and Their Tax Consequences – Sam Moriarty Tax Senior Associate 

The complex world of fringe benefits sits at the intersection of employee satisfaction and tax compliance—a space where both employers and employees need expert guidance to navigate successfully. Tax Senior Associate Sam Moriarty pulls back the curtain on these valuable workplace perks that extend beyond basic salary.

Sam brings 23 years of expertise to this discussion, explaining how benefits like health insurance, paid time off, 401k matching, and company facilities must be properly reported to avoid costly penalties. For employees, these perks create a sense of value and address essential needs, allowing them to focus on performance without external worries. For employers, a thoughtful benefits package becomes a powerful tool for attracting talent, boosting morale, and reducing turnover in competitive markets.

The tax implications can be significant and sometimes surprising. S corporation shareholders must treat health insurance as taxable income on their W-2s, while company vehicles for personal use require proper reporting as well. Improper handling of these requirements can trigger underpayment penalties with accumulating interest for employers, while employees might face the headache of amended tax returns and unexpected liabilities. As the workplace evolves, so do fringe benefits—with flexible schedules, remote work options, daycare reimbursement, pet-friendly policies, and on-site facilities becoming increasingly common. Before implementing any benefit program, Sam strongly recommends consulting with an attorney experienced in employment law to navigate the complex regulatory landscape. 

Call 413-739-1800 to connect with our team and ensure your benefit strategy enhances employee satisfaction while maintaining full tax compliance.

To learn more about MP CPAs visit:
https://thempgroupcpa.com/
MP CPAs
413-739-1800

Episode Transcript

Speaker 1 (00:01):
Welcome to the Knowing what Counts podcast, the
place where expert guidancemeets smart financial decisions.
Whether you're a high net worthindividual or a thriving
business, the experts at MPCPAsare here to help you protect and
optimize your wealth.
Let's get started, becausesuccess begins with knowing what

(00:22):
counts.
Because success begins withknowing what counts.

Speaker 2 (00:26):
French benefits can be a valuable perk, but they
come with tax implications thatemployees and employers need to
consider.
Welcome back everyone.
I'm Sofia Yvette, co-host andproducer, here in the studio
today with Sam Moriarty, taxSenior Associate at MPCPAs.

Speaker 3 (00:47):
Hi Sam.
How's it going today?
Good Thanks.
How about you, sophia?

Speaker 2 (00:49):
It's going well for me too.
Thanks for asking, sam.
Now can you introduce yourselfto the audience and tell them a
little bit more about your roleat the firm?

Speaker 3 (00:59):
Yes, my name is Sam Moriarty and I'm a senior
associate at the firm.
I have been at the firm for 23years.
Areas of my expertise includeindividuals, small businesses,
estates, trusts and nonprofits.

Speaker 2 (01:12):
Now what qualifies as a fringe benefit under IRS
guidelines and what are someexamples?

Speaker 3 (01:20):
So basically, a fringe benefit is considered any
compensation that's beyond anormal salary, be it either a
working condition fringebenefits or an actual paid
benefit.
These would include items likepaid vacations, paid sick leave,
401k plan matching or, like acompany fitness facility or like

(01:46):
a company fitness facility.

Speaker 2 (01:47):
Now, why are fringe benefits important to employees
and employers?
And how do they?
How do fringe benefits differbetween the two?

Speaker 3 (01:55):
For employees, it's very important that they have
good fringe benefits because itmakes them feel more valuable
and their needs are met in termsof things like health insurance
or daycare.
All those needs can be takencare of, which helps and which

(02:19):
can improve the performance ofan employee because they don't
have to worry about those things.
Now, on the other end, there'salso you know from we look at
employers and it's importantthat you know for the employers
end that we attract the bestemployees and you know we keep
morale going among a firm andit's always good in the long

(02:46):
term if we can keep ouremployees.

Speaker 2 (02:51):
Most definitely.
Now, what are the reportingrequirements for fringe benefits
?

Speaker 3 (02:57):
Well, if the reporting, if the fringe
benefits are taxable, then theyare includable in the form W-2
that's issued to the employee asa wage.
In addition, if they'renon-taxable fringe benefits,
they may also be reportable aswell.

Speaker 2 (03:21):
Interesting.
Now, what are the taximplications on some of the more
common fringe benefits?

Speaker 3 (03:32):
One common thing is if someone is an S corporation
shareholder and they receive aW-2, the health insurance would
be taxable there.
If an employee receivessomething like a company vehicle
, that would also be aninclusion in a W-2.

Speaker 2 (03:50):
So, sam, what are some of the lesser known fringe
benefits that companies areoffering to attract talent?

Speaker 3 (03:59):
Well, sophia.
Some common benefits that arenow being offered are such
things as pet-friendlyworkplaces and on-site gym
facilities.
Those are a few several I canthink of.

Speaker 2 (04:13):
Now, what are the consequences of improper
reporting of fringe benefits?
I'm sure they have some.

Speaker 3 (04:22):
I'm sure they have some.
Yes, there could be penaltieson an employer from
underreporting wages when abenefit is required to be
included in those wages, andthat would result in FICA and
unemployment taxes beingunderpaid.

Speaker 2 (04:48):
So they could be subject to a penalty.

Speaker 3 (04:57):
And what is the penalty that they're subject to?
It's what is known as anunderpayment penalty.
And they, you know, they goback and they assess a penalty
and then they will like accrueinterest from the time that that

(05:20):
tax should have been paid.
So they, you know, they'll goback at a certain point in time.
They'll say, well, you'resupposed to have X amount at
this date and you didn't.
And now you know you'll besubject to the penalty.
Then interest is assessed ontop of that by either the IRS or
a, you know, a state, and or astate unemployment tax authority

(05:47):
.

Speaker 2 (05:48):
Wow, it sounds like it can get pricey.

Speaker 3 (05:51):
Yes, yes, it can.

Speaker 2 (05:54):
Now, are there any?

Speaker 3 (05:58):
Another one is errors in W-2 reporting could also
mean like for the employee.
They could have to amendreturns themselves for the
personal return and paypenalties and interest for
underpayment there too.
So it affects the employee aswell.

Speaker 2 (06:16):
Wow, Now are there any trends or innovations in
fringe benefits that arebecoming more common for
employees to offer, employers tooffer?

Speaker 3 (06:30):
Yes, you know.
One common thing is you knowwe're seeing it a lot now
Flexible schedules, you know,with the pandemic happening,
that's a really you know big one, you know.
And also remote working, whichis related to that.
Daycare reimbursement that'sanother big issue right now, as

(06:52):
some employees are required toreturn to the office.
Another one I can think of isflexible spending accounts,
which could either be used foritems like daycare or
out-of-pocket medical expenses.

Speaker 2 (07:08):
Now what should someone do if they want to
provide fringe benefits to theiremployees?

Speaker 3 (07:15):
Well, one thing I would always suggest to people
is that you meet with anattorney, preferably one that
has experience in employment law, to make sure that your benefit
offerings are being doneproperly and legally.
There's a lot of complex rulesthat must be followed.

Speaker 2 (07:41):
Wow, rules that must be followed.
Wow Well, sam, thank you somuch for sharing those helpful
insights today with ourlisteners on fringe benefits.
Maybe we'll catch you in thenext episode.
Have a fantastic rest of yourday All right, thank you.

Speaker 1 (07:59):
Thanks for listening to the Knowing what Counts
podcast.
Ready to optimize your wealthand protect your future, visit
thempgroupscpacom or call413-739-1800 to connect with our
team of experts.
Remember, success is aboutknowing what counts.