Benefits Taxable and Non Taxable

Guide

Exchanging labour for compensation is something that people all around the world do every day. As an individual goes up the ladder within a company, simple cash remuneration ceases to be motivating enough. In seeking more, the options for benefits become essential for employers. Over and above the normal pay rate are benefits. Normal pay or compensation is the wages or salary that a person is paid in return for any work that they do.

Benefits refer to non-cash income which may or may not be included in the total compensation that a person receives. As job seekers select employment options, employer fringe benefits may be the key reason a potential employer stands out. A fringe benefit is a compensation that is offered to employees, partners and contractors of a company. These benefits need to be differentiated between those that are taxable and non-taxable so that their true value can be ascertained.

Taxable Employee Benefits

As the gross income is being calculated, taxable fringe benefits are typically included. These may include the following: –

  1. Bonuses
  2. Vacation Expenses
  3. Personal use of company vehicle

When making claims for these taxable fringe benefits, it is necessary to claim fair market value. This means that one must claim the amount that they would have paid if they were paying for the product or service using their own funds. The cost could also be calculated based on how much it would cost to lease the same product or service.

It is these taxable fringe benefits that attract income tax withholding. Payments on these benefits can be made in various ways including annually, bi-annually, quarterly or within a lower defined pay period.

Non-Taxable Fringe Benefits

Several benefits are not subject to tax, and therefore, are not included as part of gross income. There are many more non-taxable fringe benefits compared to the taxable ones. HR managers need to take note of these as they are updated on an annual basis. These may include the following: –

  1. Employee Stock Options which can be offered as an employment incentive as part of purchase plan.
  2. Employee discounts where employees are able to purchase products or services from the company at a reduced cost. The discount should not exceed the gross profit percentage.
  3. Retirement planning services for all employees who are receiving retirement planning advice so that they can have an excellent retirement plan.
  4. Health flexible spending accounts – These target employees who are lower earners
  5. Educational assistance up to the value of $5,250 annually. This enables learners to pay tuition, purchase books and equipment and any other supplies they need.
  6. Working condition benefits that ensure that the employee is able to do their job with ease. This is provided to all employees where it might be deemed necessary.

With taxable and non-taxable allowances, it is essential to have a full understanding of labor laws, especially any updates made. Benefits are excellent for attracting and retaining excellent skilled employees.

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