Payroll 101: What is Fringe Benefits

A fringe benefit is a form of pay (including property, services, cash or cash equivalent) in addition to stated pay for the performance of services. Some forms of additional compensation are specifically designated as “fringe benefits” in the Internal Revenue Code.

Fringe benefits commonly include health insurance, group term life coverage, education reimbursement, childcare and assistance reimbursement and cafeteria plans. Fringe benefits for employees are taxable wages unless specifically excluded by a section of the Internal Revenue Code (IRC).

The IRC may provide that fringe benefits are nontaxable, partially taxable, or tax-deferred.

Taxable – Includible in gross income unless excluded under an IRC section. “Taxable” means the benefit is included in the employees' wages and reported on Form W-2, Wage and Tax Statement, and generally is subject to Federal income tax withholding, social security (unless the employee has already reached the current year social security wage base limit), and Medicare. If the recipient is an employee, this amount is includible as wages. For example, bonuses are always taxable because no IRC section excludes them from taxation


Nontaxable (excludable) – Excluded from wages by a specific IRC section; for example, qualified health plan benefits excludable under section 105.


Partially taxable - Part is excluded by IRC section and part is taxable. Benefits may be excludable up to dollar limits, such as the public transportation subsidy under IRC §132.

Tax-deferred – Benefit is not taxable when received, but subject to tax later. For example, employer contributions to an employee's pension plan may not be taxable when made, but may be taxed when distributed to the employee.


ezPaycheck small business payroll software can handle fringe benefits. It comes with default settings for health Insurance and 401K. Users can also add customized deduction fields to handle taxable or non-taxable fringe benefits easily. Learn more at

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