The IRS has provided a rather lengthy list of fringe benefits that are not subject to payroll taxes, as long as you meet certain rules. For the most part, these benefits are exempt from both FICA and FUTA taxes. Furthermore, they are not taxable to the employee for income tax purposes, so there is no need to withhold income tax on the value of the payments:
- health plan payments, including both insurance premiums and payments from health plans for medical expenses, to or on behalf of an employee, employee's spouse, or employee's dependents
- long-term care insurance premiums and payments
- any sick pay or disability payments made later than six months after the employee last worked for you
- payments made on account of retirement for disability or death, including wages earned before the employee died but paid to a survivor after the year of death
- employer's contributions to a qualified pension or retirement plan, including profit-sharing, SEP, or SIMPLE plans (employees' elective contributions to retirement plans, such as contributions to 401(k) or SIMPLE plans, are subject to FICA and FUTA taxes but not income tax withholding)
- group-term life insurance premiums on policies of up to $50,000 per employee
- workers' compensation premiums and benefits
- up to $5,250 in nongraduate and graduate school employer-provided educational assistance, regardless of whether the education is job-related
- meals and lodging furnished for the employer's convenience to employees and their dependents
- dependent-care assistance, up to a limit
- services that your business provides to an employee at no additional cost to yourself and that you offer for sale to your customers; generally speaking these are "excess capacity" services like free standby air travel for airline employees, free hotel rooms for hotel employees, etc.
- certain employee discounts on the products or services you sell (the discount on services may be up to 20 percent; the discount on products may be as high as your gross profit percentage)
- property or services that you provide to an employee and for which the employee would have been entitled to a tax deduction had the employee paid you for the property or services (examples: company car used for business purposes, safety equipment, job training)
- benefits that have minimal value, such as occasional parties, occasional supper money or taxi fares when an employee works late, occasional tickets to entertainment or sporting events, use of company telephone or copy machines for personal purposes, etc.
- reimbursements for qualified moving expenses; generally this includes the cost of packing and transporting household goods and personal effects, and of transporting the employee and his or her family from the former residence (including lodging en route); the new job location must be at least 50 miles farther from the employee's former home than the old job location, and the employee must work full time for at least 39 weeks during the first 12 months after the move
- commuting-related benefits such as limited mass transit passes, vanpooling services, parking and bicycle benefits
- athletic facilities such as a gym or swimming pool located on the business premises, and operated substantially for the use of employees, their spouses, and dependent children
- qualified adoption assistance expenses up to $12,970 per eligible child for 2013, are not subject to income tax withholding, although these expenses are subject to Social Security, Medicare, and federal unemployment taxes
- differential pay that employers pay to their employees who leave their job to go on active military duty is subject to income tax withholding, but is not subject to Federal Insurance Contributions Act ("FICA") or Federal Unemployment Tax Act ("FUTA") taxes; employers may use the aggregate procedure or optional flat rate withholding to calculate the amount of income taxes required to be withheld on these payments, and these payments must be reported on Form W-2
Timing of payment. For fringe benefits that are taxable, you have some flexibility in designating when the benefits are paid for purposes of determining when your payroll taxes on the benefits are due. In general, you may treat a benefit as having been paid on your regular payday or on any other periodic basis (monthly, quarterly, etc.), provided you treat them as having been paid at least as often as once a year.