Difference between revisions of "Calculate Fringe Benefits"
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#* Payments to fund social security; | #* Payments to fund social security; | ||
#* Unemployment compensation; and | #* Unemployment compensation; and | ||
| − | #* Workers' compensation.<ref>http://www.dol.gov/whd/programs/dbra/faqs/fringes.htm</ref> | + | #* Workers' compensation.<ref name="rf1">http://www.dol.gov/whd/programs/dbra/faqs/fringes.htm</ref> |
#Locate a copy of your employment contract. You will be able to begin finding fringe benefits by looking at a copy of your employment contract. The contract will dictate what type benefits you receive from your employer. | #Locate a copy of your employment contract. You will be able to begin finding fringe benefits by looking at a copy of your employment contract. The contract will dictate what type benefits you receive from your employer. | ||
#* For example, your employment contract may state your employer will pay for health insurance. If your contract says this, you can include health insurance as a fringe benefit. If your employer states you will have access to a company car, this would be a fringe benefit as well. | #* For example, your employment contract may state your employer will pay for health insurance. If your contract says this, you can include health insurance as a fringe benefit. If your employer states you will have access to a company car, this would be a fringe benefit as well. | ||
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#* Stock options; | #* Stock options; | ||
#* Moving expense reimbursements; and | #* Moving expense reimbursements; and | ||
| − | #* Transportation benefits.<ref>https://www.irs.gov/publications/p15b/ar02.html#en_US_2016_publink1000193770</ref> | + | #* Transportation benefits.<ref name="rf2">https://www.irs.gov/publications/p15b/ar02.html#en_US_2016_publink1000193770</ref> |
=== Calculating Your Own Fringe Benefits as an Employee === | === Calculating Your Own Fringe Benefits as an Employee === | ||
#Consider why you would calculate your fringe benefits. If you are an employee, or potential employee, you may want to calculate fringe benefits to get an idea of the full value of your services. Also, if you are looking at a particular job, you may want to calculate the value of fringe benefits to get an idea of the full compensation package. | #Consider why you would calculate your fringe benefits. If you are an employee, or potential employee, you may want to calculate fringe benefits to get an idea of the full value of your services. Also, if you are looking at a particular job, you may want to calculate the value of fringe benefits to get an idea of the full compensation package. | ||
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#* In another example, assume you are looking at two separate jobs. One of them offers you a salary of $75,000 but no fringe benefits. The other job offers you a salary of $50,000 and includes fringe benefits equaling around $40,000. If you don't calculate the value of the second job's fringe benefits, you may think the first job is a better offer. However, when you add up the full compensation packages of each job, you may decide the second job offer is better. | #* In another example, assume you are looking at two separate jobs. One of them offers you a salary of $75,000 but no fringe benefits. The other job offers you a salary of $50,000 and includes fringe benefits equaling around $40,000. If you don't calculate the value of the second job's fringe benefits, you may think the first job is a better offer. However, when you add up the full compensation packages of each job, you may decide the second job offer is better. | ||
#Create a list of fringe benefits you receive.To start your calculations, create a spreadsheet on your computer or grab a piece of paper and make a series of columns and rows you can write in. In the first column, write down every fringe benefit you receive from your employer. | #Create a list of fringe benefits you receive.To start your calculations, create a spreadsheet on your computer or grab a piece of paper and make a series of columns and rows you can write in. In the first column, write down every fringe benefit you receive from your employer. | ||
| − | #Compute the fair market value (FMV) of certain fringe benefits. Most fringe benefits are valued using their FMV. The FMV of a benefit is the amount you would have to pay a third party to buy or lease it. The FMV does not take into consideration what you believe the value of something to be.<ref>https://www.irs.gov/publications/p15b/ar02.html#en_US_2016_publink1000193771</ref> | + | #Compute the fair market value (FMV) of certain fringe benefits. Most fringe benefits are valued using their FMV. The FMV of a benefit is the amount you would have to pay a third party to buy or lease it. The FMV does not take into consideration what you believe the value of something to be.<ref name="rf3">https://www.irs.gov/publications/p15b/ar02.html#en_US_2016_publink1000193771</ref> |
#* For example, if you are allowed to use athletic facilities owned by your employer, the FMV of that fringe benefit would be the amount of money it would cost you to pay for a gym membership in your city that includes the same types of athletic opportunities as you have with your employer. If you live in Los Angeles, California, you would not calculate the cost of a gym membership in Miami, Florida. Also, if your employer gives you access to a pool and basketball courts, you would not calculate the cost using a gym membership that only offers a weight room. | #* For example, if you are allowed to use athletic facilities owned by your employer, the FMV of that fringe benefit would be the amount of money it would cost you to pay for a gym membership in your city that includes the same types of athletic opportunities as you have with your employer. If you live in Los Angeles, California, you would not calculate the cost of a gym membership in Miami, Florida. Also, if your employer gives you access to a pool and basketball courts, you would not calculate the cost using a gym membership that only offers a weight room. | ||
#* Once you calculate the FMV of your fringe benefit, put that amount in the the column next to the fringe benefit you calculated and in the same row. | #* Once you calculate the FMV of your fringe benefit, put that amount in the the column next to the fringe benefit you calculated and in the same row. | ||
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=== Determining the Cost of Fringe Benefits as an Employer === | === Determining the Cost of Fringe Benefits as an Employer === | ||
#Consider the advantages of providing fringe benefits. As an employer, if you provide fringe benefits, you may entice quality talent to work for you and you may keep your workforce happy and healthy. In addition, employees might prefer fringe benefits for the reduced tax liability when fringe benefits aren't taxed (while your salary will be). | #Consider the advantages of providing fringe benefits. As an employer, if you provide fringe benefits, you may entice quality talent to work for you and you may keep your workforce happy and healthy. In addition, employees might prefer fringe benefits for the reduced tax liability when fringe benefits aren't taxed (while your salary will be). | ||
| − | #* For example, companies that provide health insurance can ensure their workforce stays healthy so they can come to work and be productive. You may even get tax breaks for providing group plans.<ref>http://www.hg.org/article.asp?id=7753</ref> | + | #* For example, companies that provide health insurance can ensure their workforce stays healthy so they can come to work and be productive. You may even get tax breaks for providing group plans.<ref name="rf4">http://www.hg.org/article.asp?id=7753</ref> |
| − | #Think about the disadvantages of offering fringe benefits. Especially if you are a small employer, fringe benefits may be prohibitively expensive to provide. For example, paying an employee's healthcare (or multiple employees) can become very expensive.<ref | + | #Think about the disadvantages of offering fringe benefits. Especially if you are a small employer, fringe benefits may be prohibitively expensive to provide. For example, paying an employee's healthcare (or multiple employees) can become very expensive.<ref name="rf4" /> In another example, the cost of procuring and maintaining a gym for your employees could also be expensive. |
#* Think about these costs before you offer fringe benefits. | #* Think about these costs before you offer fringe benefits. | ||
#Make a list of all your employees. When you start calculating the amount you spend on fringe benefits, create a spreadsheet or use a piece of paper and write down the names of all your employees. | #Make a list of all your employees. When you start calculating the amount you spend on fringe benefits, create a spreadsheet or use a piece of paper and write down the names of all your employees. | ||
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#* Stock options; | #* Stock options; | ||
#* Retirement planning services; and | #* Retirement planning services; and | ||
| − | #* Many others.<ref | + | #* Many others.<ref name="rf3" /> |
#Consider the limits of tax exclusions. Some exclusions have limits, and if you receive a benefit in excess of that limit, you will be taxed on the excess. These special rules are laid out on the IRS's website. For example: | #Consider the limits of tax exclusions. Some exclusions have limits, and if you receive a benefit in excess of that limit, you will be taxed on the excess. These special rules are laid out on the IRS's website. For example: | ||
#* Achievement awards are excluded up to $1,600. | #* Achievement awards are excluded up to $1,600. | ||
#* Dependent care assistance is excluded up to $5,000. | #* Dependent care assistance is excluded up to $5,000. | ||
#* Meals are exempt only if they are furnished on the business's premises for your convenience. | #* Meals are exempt only if they are furnished on the business's premises for your convenience. | ||
| − | #* Moving expenses are exempt only if you would be able to deduct them had you paid for them.<ref | + | #* Moving expenses are exempt only if you would be able to deduct them had you paid for them.<ref name="rf3" /> |
| − | #Use the general valuation rule for fringe benefits you can't exclude. If you cannot exclude a fringe benefit you receive, you will have to put a value on it. In most cases, you will use the FMV.<ref | + | #Use the general valuation rule for fringe benefits you can't exclude. If you cannot exclude a fringe benefit you receive, you will have to put a value on it. In most cases, you will use the FMV.<ref name="rf3" /> |
#Look for special cases. In some cases, you may not be able to use the FMV. The most common example of this is with employer-provided vehicles. If you have an employer provided vehicle, you may have to calculate the value of the benefit in one of the following ways: | #Look for special cases. In some cases, you may not be able to use the FMV. The most common example of this is with employer-provided vehicles. If you have an employer provided vehicle, you may have to calculate the value of the benefit in one of the following ways: | ||
#* The cents-per-mile rule. Under this rule, you multiply the standard mileage rate by the total miles the employee drives the car for personal purposes. | #* The cents-per-mile rule. Under this rule, you multiply the standard mileage rate by the total miles the employee drives the car for personal purposes. | ||
#* The commuting rule. Under this rule, you multiply each one-way commute (from home to work and from work to home) by $1.50. | #* The commuting rule. Under this rule, you multiply each one-way commute (from home to work and from work to home) by $1.50. | ||
| − | #* The lease value rule. Under this rule, you use a vehicle's annual lease value.<ref | + | #* The lease value rule. Under this rule, you use a vehicle's annual lease value.<ref name="rf3" /> |
#Add up all of your calculations. Once you have determined what benefits are excluded and what has to be valued, you will then add all of your benefit values together that cannot be excluded. This is considered the total taxable amount of fringe benefits. | #Add up all of your calculations. Once you have determined what benefits are excluded and what has to be valued, you will then add all of your benefit values together that cannot be excluded. This is considered the total taxable amount of fringe benefits. | ||
| − | #Add the value of your taxable fringe benefits to your regular wages. When you do your federal income tax return, you will add your taxable fringe benefits to your regular wages; this total value is your taxable income and you can figure tax withholding based on it.<ref>https://www.irs.gov/publications/p15b/ar02.html#en_US_2016_publink1000193805</ref> | + | #Add the value of your taxable fringe benefits to your regular wages. When you do your federal income tax return, you will add your taxable fringe benefits to your regular wages; this total value is your taxable income and you can figure tax withholding based on it.<ref name="rf5">https://www.irs.gov/publications/p15b/ar02.html#en_US_2016_publink1000193805</ref> |
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