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Fringe benefits are one of the best ways to attract and retain employees in the current tightening job market. Small businesses will especially draw in employees with benefits that are tax-free. Different benefits are taxed differently. Here is a look at various benefits and some of the tax policies that apply to them.
Health insurance is one of the most common fringe benefits employers offer. If you maintain a health care plan, coverage under the plan is not taxable for your employees. Use of a cafeteria plan excludes any employee contributions from income pretax. Other forms of coverage will be deductible on a limited basis as an itemized deduction.
Disability premium payments nor contributions to a trust for disability benefits can be included in employees’ income. Also, employees’ premium payments or contributions to your disability trust are not usually tax deductible, nor are they excludable from their income. However, they can make pretax contributions to a cafeteria plan which are excludable from their income.
Long-term care insurance
Long-term care insurance cannot be provided through a cafeteria plan. However, employers’ premium payments are not taxable to employees.
Often employees can exclude up to $50,000 from gross income premiums the employer has paid on qualified group term life insurance coverage. Qualified coverage premiums exceeding $50,000 are taxable at the level they exceed the employee’s coverage contributions.
Dependent care assistance
The Dependent Care Assistance Program (DCAP) allows employers to provide tax-free dependent care assistance up to $5,000 in dependent care assistance through a flexible spending account (FSA).
Adoption assistance of up to $13,810 can be excluded from taxable income as of 2018.
Employers can provide tax-free educational assistance plans of up to $5,250 as well as qualified scholarships.
Moving expense reimbursement
Since the 2018 passing of the Tax Cuts and Jobs Act (TCJA), there is not a break for employees for qualifying job-related moving expenses through 2025. However, businesses may be able to deduct reimbursements.
Certain employee transportation benefits such as mass transit passes, vanpooling, and parking allowances are tax-free to employees. The Tax Cuts and Jobs act has suspended employer deductions on these expenses through 2025.
We can answer questions you might have about employee fringe benefits and the tax policies that apply to them. Contact us at 949-860-9902 or click here, and we will contact you.