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A taxable fringe benefit is a non-cash benefit an employer gives to an employee that the IRS has determined should be taxed. The benefit must be given a monetary value and added to a payroll. Take a look at this IRS Fringe Benefits Guide for more information.
Examples of fringe benefits include, but are not limited to:
- Gift cards
- Use of a company car
- Gym membership
- Moving expenses
Note: Taxable fringe benefits are an item that you may need to add to payroll as wages to appear on Form W-2s. Group term life insurance premiums and S-Corp owner health premiums are some others. Consult with an attorney or other professional to make sure you are recording all you need to.
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To record a fringe benefit for tax purposes, you will add the earning to a payroll on the Employee Earnings step. Check out the One Time Earnings section of Toast Payroll: Adding or Editing Earnings & Deductions for instructions. If you need an earning code created to support these benefits, select the blue chat button in the lower-right corner of any Toast Payroll page and submit this form to a Care agent.
Here are some important details to note:
- The benefit must be recorded on a payroll with cash earnings. This is because the non-cash earning increases the employee’s gross wages and taxable wages, but since there is nothing actually being paid out, just a value being recorded, the employee’s net pay does not increase and Toast Payroll will need to pull the tax withholding from the cash earnings.
- All benefits must be added prior to the last payroll of the year.
- If the earning being recorded is large (ex: $20,000 car allowance), it may be in the employee’s best interest to break it up over a few payrolls to lighten the tax burden.
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Additional Resources
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This content is for informational purposes and is not intended as legal, tax, HR, or any other professional advice. Please contact an attorney or other professional for advice.
