With the arrival of fall, employers are certainly looking ahead to calendar year-end deadlines and obligations. One annual year-end task is the accounting for and reporting of fringe benefits, which the IRS considers a form of pay for the performance of services. Examples include, but are not limited to, group-term life insurance, personal use of company vehicles and moving expenses.
Fringe benefits are taxable, unless specifically excluded by law, so it is critical that they are properly calculated and reported on W-2 forms for employees. As always, there are exceptions, particularly as it relates to fringe benefits provided to partners or 2% S corporation shareholders, so it is important to consult with your tax advisor regarding your particular circumstances.
In years past, the RKL team has provided reporting reminders and a primer on basics of fringe benefit reporting. This year, we bring to our readers’ attention a few changes and updates to fringe benefit reporting in 2016.
Transportation Benefits Exclusion Amount Increased
Over the past year, RKL’s tax professionals have discussed several provisions of the Protecting Americans from Tax Hikes (PATH) Act that was signed into law in December 2015. One lower profile change impacts fringe benefits related to employee parking and commuting.
The IRS categorizes parking expenses, commuter highway transportation and transit passes as “qualified transportation fringe benefits,” and provides for a monthly exclusion from income the cost of such benefits.
The PATH Act permanently created parity between the monthly exclusion amount for transit passes and commuter highway transportation, which had previously been $130, and the monthly amount for qualified parking expenses, which was $250 for 2015. This parity was also applied retroactively for eligible employees for calendar year 2015. Your RKL advisor can assist with correctly adjusting taxes if this applies to your specific company situation.
For 2016, the monthly exclusion for both parking and transit is $255.
Taxability of Identity Theft Protection Services
A topic not included in IRS Publication 15-B, “Employer’s Tax Guide to Fringe Benefits,” is identity theft protection services provided to customers or employees. As data breaches become increasingly common, employers are offering services like credit reporting and monitoring, identify theft insurance policies or identity restoration services with more regularity. Though not included in Publication 15-B, the IRS did issue two announcements over the past year to clarify the issue of the taxability of such services.
First, the IRS assured employers and individuals that the value of identity protection services provided after a data breach is not considered taxable. This benefit is not required to be reported via Form W-2 or 1099-MISC. Later, the IRS expanded their stance to include identity protection services provided generally to individuals, not only those compromised by a breach. According to the IRS, whether issued as the result of a breach or not, identity protection services are not considered a taxable benefit for employers or individuals.
The accounting and reporting of fringe benefits is a process unique to each company’s circumstances and specific situation. For additional information on fringe benefits, please visit the two links below from the RKL blog archive:
- Crunch Time: Capture Fringe Benefits Before Year End
- The Tax Impact of Providing Fringe Benefits to Partners and S Corp Shareholders
Please contact your RKL advisor or one of our local offices for clarification as to whether these two areas of change apply to you, or for assistance calculating fringe benefits generally.
Contributed by Tina Dodson, CPP, EA, in RKL’s Small Business Services Group. Tina has more than 18 years’ experience helping small business owners and their management teams meet their financial reporting and individual and corporate tax return preparation needs.