The IRS released Publication 15-B, the Employer’s Tax Guide to Fringe Benefits, for use in 2023.
A fringe benefit is a type of pay for the performance of services. A fringe benefit is taxable and must be included in the recipient’s pay unless the benefit is specifically excluded by law. If the fringe benefit is not excludable from pay, it is subject to employment taxes and must be reported on Form W-2.
Cafeteria plans, including flexible spending account plans, are used to give employees some qualified benefits that are not subject to tax. The cafeteria plan rules allow only certain qualified benefits to be paid pre-tax. These include:
- Accident and health benefits
- Adoption assistance
- Dependent care assistance
- Group term life insurance up to a certain limit
- Health savings accounts.
Some benefits are not permitted to be paid pre-tax through a cafeteria plan. These include:
- Archer MSAs
- Athletic facilities
- De minimis benefits
- Educational assistance
- Employee discounts
- Employer-provided cell phones
- Lodging on business premises
- Meals
- No-additional cost services
- Retirement planning services
- Commuting benefits
- Tuition reduction
- Working condition benefits
Some of the items that cannot be paid through a cafeteria plan still may be excluded from the recipient’s pay if as IRS-permitted excluded fringe benefits. Employers should consult with their tax advisors when providing benefits to employees and reference Publication 15-B for the applicable tax year. A copy of Publication 15-B may be accessed by clicking here.
