Fringe Benefit Imputed Income Reference

Business use of a company vehicle is excludable as a working condition fringe benefit. Personal use (including commuting) is taxable compensation that must be calculated and included in wages.

Three Valuation Methods

Annual Lease Value Table (Sample)

Full ALV table in IRS Publication 15-B. Personal use % = personal miles ÷ total miles driven.

Amounts above the monthly exclusion are taxable wages subject to income tax withholding and FICA. Employer deduction for providing qualified transportation benefits is generally not allowed (TCJA 2017) — but the employee exclusion still applies.

The exclusion applies to employer-paid dependent care assistance and employee salary reductions through a §125 cafeteria plan. Qualified dependent care expenses: day care, after-school programs, summer day camps for children under 13, and care for qualifying disabled dependents of any age.

W-2 reporting: employer-provided dependent care amounts reported in Box 10. Amounts exceeding the annual exclusion are taxable wages.

Employer-provided educational assistance under a qualifying §127 plan is excludable up to $5,250 per year. The One Big Beautiful Bill Act (P.L. 119-21) permanently extended the exclusion — which had previously been a temporary provision set to expire — and specifically retained the extension to employer payments of student loan principal and interest.

Qualifying Plan Requirements

• Written plan document must exist
• Must not discriminate in favor of highly compensated employees (more than 5% owners or their spouses/dependents)
• Employees must receive advance notice of the plan
• No more than 5% of amounts paid may benefit 5% owners or their family members
• Employees may not choose between educational assistance and other taxable compensation (no cash option)

Amounts above $5,250 are taxable wages. Graduate-level courses are covered. Courses do not need to be related to the employee's current job under §127 (unlike working condition fringe benefits under §132(d)).

HSA contributions (employer + employee combined) are not included in wages. The combined limit applies to all contributions from all sources. Employer contributions are reported in W-2 Box 12 Code W and are not subject to income tax withholding or FICA.

HDHP Requirements — 2026

Meals and lodging furnished by the employer are excludable from income if ALL three conditions are met:

1. Furnished on the employer's business premises
2. Furnished for the employer's convenience (a substantial noncompensatory business reason)
3. For lodging only: employee must accept lodging as a condition of employment

For active-duty military personnel only: moving expense reimbursements remain excludable and are reported in W-2 Box 12 Code P.

Gross-up practice: many employers choose to gross up taxable moving expense reimbursements to make the employee "whole" after taxes. The gross-up amount is also taxable compensation.

Employer-provided adoption assistance under a qualifying §137 plan is excludable from income tax (but NOT from FICA) up to $17,670 in 2026. The exclusion phases out for employees with modified AGI between $211,860 and $251,860 (2026 — verify in Rev. Proc. 2025-32).

W-2 reporting: adoption assistance amounts reported in Box 12 Code T. Even excludable amounts must be reported — they are excluded from income tax withholding but subject to FICA. Employees claim the credit/exclusion on their Form 8839.

A de minimis fringe benefit is one so small in value that accounting for it would be unreasonable or administratively impracticable. No specific dollar threshold is set by statute — the IRS has informally cited $25–$75 as guidance, but the test is administrative impracticability, not a bright-line dollar amount.

Clearly De Minimis (Excludable)

• Occasional personal use of office copy machine (where 85%+ of use is business)
• Occasional company parties or picnics open to all employees
• Occasional meal money or local transportation fare for working overtime
• Holiday gifts of nominal value (e.g., a turkey at Thanksgiving) — not cash
• Flowers, fruit, books — occasional only

NOT De Minimis (Taxable)

• Cash or cash equivalents — never de minimis regardless of amount
• Gift cards — even for small amounts; always taxable
• Season tickets to sporting events or concerts
• Memberships in private clubs (unless working condition fringe)
• Use of employer-owned vacation property

The value of on-premises athletic facilities is excludable if the facility is: (1) on premises owned or leased by the employer, (2) operated by the employer, and (3) used substantially all (85%+) by employees, their spouses, and dependent children. Off-premises gym memberships are taxable compensation. Health club reimbursements are taxable even if the employer also has an on-premises gym.

Qualified employee discounts are excludable up to: (1) the employer's gross profit percentage on goods sold to non-employee customers, or (2) 20% of the price charged to non-employee customers for services. The employee must be in the same line of business that offers the goods or services.

Discounts above these limits, or for property not regularly sold to customers, are taxable compensation. Discounts on real property and investment property are never excludable.