- October 26, 2023
- Posted by: Web Digital Media Group
- Categories: Business plans, S Corporation
Today, we’re diving into the world of fringe benefits for employees, the perks that make your workplace stand out and keep your team happy and motivated!
Fringe Benefits: Making Workplaces Desirable
A fringe benefit is like the icing on the cake, an extra reward that supplements your employees’ salaries. These non-cash compensations can elevate your company’s appeal and make your positions more enticing for top talent.
Let’s explore the two types of fringe benefits: taxable and non-taxable.
Non-Taxable Fringe Benefits: What You Need to Know
Some benefits are not subject to withholding, social security, Medicare or unemployment (FUTA) taxes.
Examples of non-taxable fringe benefits include:
- Medical and Dental Insurance
- Company Car for Business Errands
- Subsidized Meals and Employee Discounts
Some benefits, while still great for employees, are taxable. This means they’re subject to withholding and payroll taxes.
Examples of Taxable Fringe Benefits include:
- Offsite Athletic Facilities & Health Club Memberships
- Company-Sponsored Events and Parties
- Event Tickets (Concerts, Athletics, etc.)
- Intangible Properties (Vacation Stocks, Securities, etc.)
- Cash Benefits or Gift Cards exceeding specified limits
- Company-Sponsored Vacations
- Employer-provided vehicles (for business use)
- Onsite Recreational Facilities (e.g., gyms)
- Entertainment Expenses: A Change in Deductibility
- Moving Expense Reimbursements (no longer deductible as a business expense)
It’s worth noting that most entertainment expenses are no longer deductible. So, while they can still be great fringe benefits for employees, they won’t be tax-deductible for your business.
S Corps vs. C Corps: Tax Treatment Differences
For S corporation shareholders owning more than 2% of the company, some rules vary. Health or accident premiums are deductible for the S Corp as an expense, but they’re taxed to the individual as wages. However, these additional wages don’t incur FUTA, Social Security, or Medicare taxes, just regular income tax.
On the other hand, C corporations have an advantage as they can deduct the entire cost of health insurance provided to their employees, regardless of their ownership stake. This means that C Corp shareholder-employees can receive health insurance and accident premium benefits tax-free!
- New Tax Credit: Family and Medical Leave
- Electric Vehicle Credits
- The Employee Retention Tax Credit
Remember, tax laws and regulations may vary, so always consult with a tax professional to ensure compliance and to make the most of these fantastic benefits for your employees and business.
Are Sec 125 Plans also known as Cafeteria Plans available to owner/s-employee/s of an S-Corp?
A: Simply put, no.
Companies whose owners are Self-Employed
Can Sponsor a Section 125 Plan. Even though self-employed individuals cannot participate in a Section 125 plan, it is important to remember that partnerships, S-Corporations, LLCs and LLPs can still sponsor a Section 125 plan for their employees.
To avoid inadvertent participation in the Section 125 plan by ineligible employees, those doing payrolls and administering the Section 125 plan must take care to understand the special rule for self-employed individuals.