According to the Internal Revenue Service, compensation for services includes "fees, commissions, fringe benefits, and similar items." Unless excluded by specific laws, the fair market value of fringe benefits must be included in an employee's gross income. Benefits are subject to income tax withholding and employment taxes.
Certain courtesies, facilities, and privileges that an employer offers its employees (and their dependents) are excluded from income and employment tax. If a fringe benefit is not excluded by Internal Revenue Code Section 132 or another provision of the tax law, it is subject to tax.
Facilities or courtesies furnished by an employer to its employees are not subject to tax (or are minimally taxable) if they fall into one of the following categories:
- Services provided to employees at no additional cost to the employer.
- Qualified employee discounts.
- Working condition fringes that are property or services that the employee could deduct as a business expense if he or she had paid for it.
- Minimal value fringes (de minimis).
- Qualified transportation fringes subject to specified conditions and dollar limitations.
- Qualified moving expense reimbursements.
- Use of on-premises athletic facilities.
- Qualified tuition reduction that an educational organization provides to the employees for education.