Business Fringe Benefit Checklist: Have You Considered All of Your Options?

Most businesses are not making full use of the many tax advantaged fringe benefits available in the Internal Revenue Code for employers and business owners. In most instances, fringe benefits offer great tax results in that an employer can take a tax deduction for the costs, and employees do not need to include such amounts in income. In certain cases, those benefits must be offered on a nondiscriminatory basis to all employees. However, in other cases you are legally allowed to discriminate to exclusively benefit key employees and owner employees and their families. Further, the discrimination rules vary significantly from one type of fringe benefit to another. Below is a list of the many kinds of fringe benefits that businesses can consider offering:

Health Benefits (including health insurance, dental insurance, vision insurance, prescription drug insurance, and long term care insurance):

From a federal tax perspective, business owners can offer to pay all or a portion of employees’ and their families’ health insurance. Employers can offer different types of insurance to different employees. Most employers who require employees to pay part of the cost should consider setting up a cafeteria plan to save taxes for employees.

Medical Reimbursement Plan:

Employers can pay all or create limits to reimburse employees for their out-of-pocket medical costs. There are special rules that require that these benefits be offered on a nondiscriminatory basis.

Health Savings Accounts:

This is a type of plan where employers and/or employees can contribute to pay for their medical costs on a tax advantaged basis.

Dependent Care Assistant Programs:

Employers can pay or employees can elect to participate through a cafeteria plan and pay up to $5,000 for dependent care expenses for children.

Group Term Life Insurance:

Employers can offer group term life insurance to employees on a tax advantaged basis. There are special rates if more than 60% of the benefits go to key employees.

No Additional Cost Services Fringe Benefits:

Services provided by an employer to an employee if such services are offered for sale to customers in their line of business and the employer incurs no substantial additional cost to provide it (discriminatory rules apply).

Qualified Employee Discounts:

Employers can sell goods and services to employees at substantial discounts (discriminatory rules apply).

Work Related Fringe Benefits:

Use of company car, company airplane, pay for employees’ subscription to business periodicals, home computers, outplacement services, business meals and entertainment, qualified retirement-planning services (you generally can discriminate).

Qualified Transportation Fringe Benefits:

Transit passes and parking (within limits) can be paid by employers.

Employee Awards and Prizes:

Employers can set up plans to give tax-free awards to employees for length of service, safety, or achievement with specific dollar limits and nondiscrimination rules.

Educational Programs:

Employers can set up educational assistance programs to offer tax-free reimbursement of college or continuing education costs under a written nondiscriminatory plan.

Clearly, there are many opportunities and many technical rules that must be explored by any business owner. Please call us for a consultation to explain opportunities for your company to take advantage of significant tax-advantaged programs.