Learn how to create payroll items for taxable fringe benefits.
Do you need to include fringe benefits for your employees? We explain what fringe benefits are and how to set them up.
What is a fringe benefit?
A fringe benefit is a form of pay for the performance of services, given by the employer to the employee. For example, Personal Use of a Company Car (PUCC), in which you allow the employee to use a business vehicle for personal use, is a type of fringe benefit.
Non-cash fringe benefits should ideally be reported on a payroll payment where the employee has regular wages to offset the taxes on the fringe benefit items.
Are Fringe Benefits Taxable?
Any fringe benefit you provide is taxable and must be included in the recipient's pay unless the law specifically excludes it.
Including Taxable Benefits in Pay
The recipient's pay must include the amount by which the value of a fringe benefit is more than the sum of the following amounts:
- Any amount the law excludes from pay
- Any amount the recipient paid for the benefit
Fringe Benefits Valuation Rules
You must use the general valuation rule to determine the value of most fringe benefits. Under this rule, the value of a fringe benefit is its fair market value.
Fair Market Value
The fair market value of a fringe benefit is the amount an employee would have to pay a third party in an arm's-length transaction to buy or lease the benefit.
This amount is determined on the basis of all the facts and circumstances. The fair market value of the benefit is not based on the amount the employee considers to be the value of the fringe benefit, nor the cost you incur to provide the benefit.