In addition to paying employees a salary or wages, employers often provide employees with a variety of benefits. Some of these benefits come in the form of objects such as free cars, while other benefits come in the form of plans such as insurance policies. The federal government would like to receive a portion of the profit that the employee receives by accepting these benefits, though some of these benefits are not taxed.
Fringe benefits employees receive at their workplace are subject to tax withholding. Fringe benefits include perks that employees receive from employers not paid in cash or checks, like free airline flights, cars, paid-for vacations, discounts, and memberships and tickets, according to the IRS. Employer must provide the fair market value for these fringe benefits, which are then taxed based on the fair market value.
If something is given to an employee temporarily, such as if the employee is allowed to use the company car, taxes are based on how much it would cost to lease the vehicle. Employees are also taxed for using vehicles on a temporary basis when it is not safe to use public transportation, which is $1.50 added to the employee’s income for a one-way trip.
Federal and state unemployment taxes are not paid by the employee and are instead paid by the employer, according to the IRS.
Employees can receive unemployment insurance which provides them with benefits in the event that the employee is laid off by no fault of his own. The eligibility of an unemployed individual for unemployment insurance is based off state law, according to the IRS. In many states, the unemployment insurance is funded by taxes that are paid by the employer.
Employees are not required to pay taxes on accident and health insurance benefits that are provided to them by their employers, unless the employee holds more than two percent of the shares of the company, according to the IRS. Health insurance stopped being taxable income in 1954. Other exclusions to fringe benefits are free meals, athletic facilities, educational assistance, tuition reduction and rewards that are provided to employees for achieving safety goals.
Employers received tax benefits for hiring employees in 2010. Between March and December of 2010, employers who hire employees do not have to pay the 6.2 percent portion of social security tax, according to New Jersey Women in Business. Also, employers can receive a tax credit that is worth 6.2 percent of the employee’s wages up to $1,000 per employee.