Knowing What Counts Podcast

Fringe Benefits: The Hidden Tax Implications of Workplace Perks

• Tim Provost, CPA • Episode 12

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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/
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413-739-1800

Speaker 1:

Welcome to the Knowing what Counts podcast, the place where expert guidance meets smart financial decisions. Whether you're a high net worth individual or a thriving business, the experts at MPCPAs are here to help you protect and optimize your wealth. Let's get started, because success begins with knowing what counts. Because success begins with knowing what counts.

Speaker 2:

French benefits can be a valuable perk, but they come with tax implications that employees and employers need to consider. Welcome back everyone. I'm Sofia Yvette, co-host and producer, here in the studio today with Sam Moriarty, tax Senior Associate at MPCPAs.

Speaker 3:

Hi Sam. How's it going today? Good Thanks. How about you, sophia?

Speaker 2:

It's going well for me too. Thanks for asking, sam. Now can you introduce yourself to the audience and tell them a little bit more about your role at the firm?

Speaker 3:

Yes, my name is Sam Moriarty and I'm a senior associate at the firm. I have been at the firm for 23 years. Areas of my expertise include individuals, small businesses, estates, trusts and nonprofits.

Speaker 2:

Now what qualifies as a fringe benefit under IRS guidelines and what are some examples?

Speaker 3:

So basically, a fringe benefit is considered any compensation that's beyond a normal salary, be it either a working condition fringe benefits or an actual paid benefit. These would include items like paid vacations, paid sick leave, 401k plan matching or, like a company fitness facility or like a company fitness facility.

Speaker 2:

Now, why are fringe benefits important to employees and employers? And how do they? How do fringe benefits differ between the two?

Speaker 3:

For employees, it's very important that they have good fringe benefits because it makes them feel more valuable and their needs are met in terms of things like health insurance or daycare. All those needs can be taken care of, which helps and which can improve the performance of an employee because they don't have to worry about those things. Now, on the other end, there's also you know from we look at employers and it's important that you know for the employers end that we attract the best employees and you know we keep morale going among a firm and it's always good in the long term if we can keep our employees.

Speaker 2:

Most definitely. Now, what are the reporting requirements for fringe benefits?

Speaker 3:

Well, if the reporting, if the fringe benefits are taxable, then they are includable in the form W-2 that's issued to the employee as a wage. In addition, if they're non-taxable fringe benefits, they may also be reportable as well.

Speaker 2:

Interesting. Now, what are the tax implications on some of the more common fringe benefits?

Speaker 3:

One common thing is if someone is an S corporation shareholder and they receive a W-2, the health insurance would be taxable there. If an employee receives something like a company vehicle, that would also be an inclusion in a W-2.

Speaker 2:

So, sam, what are some of the lesser known fringe benefits that companies are offering to attract talent?

Speaker 3:

Well, sophia. Some common benefits that are now being offered are such things as pet-friendly workplaces and on-site gym facilities. Those are a few several I can think of.

Speaker 2:

Now, what are the consequences of improper reporting of fringe benefits? I'm sure they have some.

Speaker 3:

I'm sure they have some. Yes, there could be penalties on an employer from underreporting wages when a benefit is required to be included in those wages, and that would result in FICA and unemployment taxes being underpaid.

Speaker 2:

So they could be subject to a penalty.

Speaker 3:

And what is the penalty that they're subject to? It's what is known as an underpayment penalty. And they, you know, they go back and they assess a penalty and then they will like accrue interest from the time that that tax should have been paid. So they, you know, they'll go back at a certain point in time. They'll say, well, you're supposed to have X amount at this date and you didn't. And now you know you'll be subject to the penalty. Then interest is assessed on top of that by either the IRS or a, you know, a state, and or a state unemployment tax authority.

Speaker 2:

Wow, it sounds like it can get pricey.

Speaker 3:

Yes, yes, it can.

Speaker 2:

Now, are there any?

Speaker 3:

Another one is errors in W-2 reporting could also mean like for the employee. They could have to amend returns themselves for the personal return and pay penalties and interest for underpayment there too. So it affects the employee as well.

Speaker 2:

Wow, Now are there any trends or innovations in fringe benefits that are becoming more common for employees to offer, employers to offer?

Speaker 3:

Yes, you know. One common thing is you know we'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, which is related to that. Daycare reimbursement that's another big issue right now, as some employees are required to return to the office. Another one I can think of is flexible spending accounts, which could either be used for items like daycare or out-of-pocket medical expenses.

Speaker 2:

Now what should someone do if they want to provide fringe benefits to their employees?

Speaker 3:

Well, one thing I would always suggest to people is that you meet with an attorney, preferably one that has experience in employment law, to make sure that your benefit offerings are being done properly and legally. There's a lot of complex rules that must be followed.

Speaker 2:

Wow, rules that must be followed. Wow Well, sam, thank you so much for sharing those helpful insights today with our listeners on fringe benefits. Maybe we'll catch you in the next episode. Have a fantastic rest of your day All right, thank you.

Speaker 1:

Thanks for listening to the Knowing what Counts podcast. Ready to optimize your wealth and protect your future, visit thempgroupscpacom or call 413-739-1800 to connect with our team of experts. Remember, success is about knowing what counts.