Unless it falls under an IRS-defined list of prohibited benefits, any employer-provided fringe benefit received as a bonus is subject to taxation. The fair market value of a reward is subject to withholding if it is recorded as a taxable fringe benefit on an employee's W-2 each year.
For the most part, a company's total remuneration is taxed on benefits like reimbursement for mileage expenditures that exceed IRS parameters and reimbursement for education or tuition costs that aren't directly tied to job performance or exceed IRS guidelines. In addition, if you use your company phone or automobile for personal purposes, you may have to pay taxes on the amount you received as a bonus.
The IRS's normal mileage rate for business travel in 2022 is 58.5 cents per mile, which taxpayers can deduct from their taxable income.
Taxes will be levied on any sum over this amount. 6.5 cents per mile, for example, is taxed if an employer reimburses its employees at 65 cents per mile. Employers can deduct up to $5,250 from employees' annual earnings for education-related aid supplied under a qualifying program. Ordinary income is taxed on amounts above this threshold.
Which Fringe Benefits Are Excluded From Taxation? 
Although some fringe benefits are considered taxable income for employees, there is a long list of popular fringe benefits exempt from taxable pay. Employees are excused from tax withholding on awards for achievements and workplace accommodations that allow them to do their duties.
For computing taxable income, advantages considered to be of a "de minimis" nature are not counted. A de minimis benefit is one with such a small monetary worth that employers can't account for it. Employees receive de minimis benefits, such as a gift card for a holiday or birthday and drinks or snacks at a business meeting.
Lunches provided to employees are generally not considered taxable fringe benefits but only if certain conditions are met. To be considered a reward, employers who purchase meals for their staff must do so on company property. Employees can eat tax-free if you provide them with a lunch during a long meeting or necessary overtime.
Health insurance (up to a maximum dollar amount), adoption assistance, group term life insurance, qualified benefits plans like profit sharing or stock bonus plans, commuting or road transport benefit (e.g. employee discounts), and working conditions only utilised for business purposes are all fringe benefits that are not taxed to employees under the Affordable Care Act.
Special Considerations
Among the other perks available to workers in the United States are unemployment insurance and worker's compensation, which are administered by the states.
Those who have lost their jobs are eligible for unemployment benefits through unemployment insurance. Workers' state of residence determines how long they worked and how much money they earned, and they must be actively looking for a new job to qualify for unemployment benefits.
The Office of Worker's Compensation Programs (OWCP) of the Department of Labor administers worker's compensation for federal employees who are injured on the job or contract an illness due to their employment. When someone is hurt on the job, they are entitled to financial assistance, medical care, or other benefits.
In addition to these government-sponsored initiatives, several businesses provide their employees with health plans, a highly coveted perk. No social security, Medicare, FUTA, or federal income tax will be taken from companies that provide health insurance for their employees.
How Much Are Fringe Benefits Taxed?
A flat 22 percent supplemental wage rate can be deducted from the value of fringe benefits instead of employee income tax. When benefits total more than $1 million, the additional salary rate is 37%.
Fringe Benefits Are Excluded From Taxes
Some fringe benefits are exempt from taxation by the Internal Revenue Service (IRS). Adoption costs, group term life insurance, retirement planning services, and de minimis benefits are a few of these perks (e.g., certain meals and employee parties).
Fringe Benefits Included in Gross Income
Employees' gross income includes all fringe benefits except those specifically exempted by the Internal Revenue Service (IRS).
The W-2 includes tax-deductible fringe benefits. On an employee's W-2, taxable fringe benefits are listed.
The Bottom Line
An employee's overall salary can be significantly enhanced by the vast range of fringe benefits offered by employers as a recruitment or retention strategy. It is critical to know how common fringe benefits are taxed to compare benefits packages between businesses.
