A fringe benefit is a type of compensation that employers may provide to employees (including certain independent contractors). Generally, a fringe benefit is taxable unless it is otherwise excluded from taxable income. IRS Publications 15-B and 5137 both address the IRS' approach to fringe benefits. For additional information regarding specific benefits programs at the University of Washington, visit the University of Washington Benefits page.
A fringe benefit is generally provided "in kind," meaning that they are typically paid in a medium other than cash. Under nearly all circumstances, a payment in cash will be taxable wages to the employee. Fringe benefits may include the use of automobiles or cellphones, tickets, moving expenses, or a variety of other benefits. The taxability of a fringe benefit will depend on whether it falls within an exception and meets the requirements for excludability.
An employer must include all taxable fringe benefits in an employee's gross income, as they are subject to federal, Medicare, and state tax withholding.
Taxable Fringe Benefits:
Cash fringe benefits, such as gift cards or gift certificates, are generally always taxable. Below are some examples of taxable fringe benefits. For additional information, or for clarification regarding whether a fringe benefit is taxable, contact the Tax Office (email@example.com).
- Gift certificates - Value of any gift certificate equivalent to cash awarded to an employee.
- Certain membership - Value of club memberships paid by the UW and related expenditures to the extent that such activities are not documented and substantiated as a bona-fide university business purpose.
- Tickets - Value of season tickets/passes to events for which there is no bona-fide business purpose or the no-additional cost service exclusion (see below under non-taxable fringe benefits) does not apply.
- Spousal travel/meals - Value of university-paid travel and meals for the spouse of a university employee where the spouse's attendance does not serve a documented and substantiated official University business purpose.
- Graduate tuition over $5,250 - Value of university-paid tuition credits taken by an employee enrolled in a graduate degree program, where the total tuition benefit exceeds $5,250 in a calendar year and does not qualify as job-related education. There is an exception. If the courses being taken are required by the University to maintain or improve skills for the graduate student's current job or are required to keep their present salary, status, or job, the graduate tuition waiver would not be taxable. there must be documentation to support this exception.
Non-Taxable Fringe Benefits:
Below are some examples of exclusions and non-taxable fringe benefits. For additional information, or for clarification regarding whether a fringe benefit is taxable, contact the Tax Office (firstname.lastname@example.org).
- De minimis fringes - property or service provided to an employee infrequently and with a value so small that accounting for it is unreasonable and administratively impractical.
- Working condition fringes - property or service provided to an employee to the extent that such expenses would be deductible business expenses if paid for by the employee. Examples are business use of items such as: cell phones, university provided automobiles, airplanes, club memberships, professional dues, publications and meetings. With the exception of university provided cell phones, any personal use of such items is considered taxable income.
- No-additional cost services - services provided for use by an employee if the service is offered primarily for sale to students and third parties and the university incurs no substantial additional cost in providing the service to the employee. An example is providing tickets to events that have not sold out.
- A qualified employee discount - a discount that allows an employee to obtain services or goods from the university at a price below that charged to the general public. Generally, a qualified employee discount cannot exceed 30%. Otherwise, it may be taxable.
- Qualified transportation fringes - pre-tax benefits solutions meant to help an employee's personal transportation needs, such as pre-tax deductions for qualified parking.
- Meals and lodging provided for the convenience of the employer - meals and/or housing provided to an employee may be non-taxable under certain circumstances. To qualify as non-taxable, the benefits must be in-kind (not cash allowances), provided for the university's convenience and be on the university's business premises. University-provided housing must also be required as a condition of employment. Any meals provided with excludable
- Tuition assistance - certain tuition payments may be excludable as working condition fringes (where courses are job related, but do not qualify the employee for a new trade or business) or educational assistance programs.