How to create taxable fringe benefits payroll items
A fringe benefit is a form of pay for the performance of services given by the provider of the benefit to the recipient of the benefit. For example, Personal Use of a Company Car (PUCC), in which you allow the employee to use a business vehicle for personal use, is a type of fringe benefit. Non-Cash Fringe Benefits should ideally be reported on a paycheck where the employee has regular wages to offset the taxes on the fringe benefit item(s). If the employee will not receive any more wages for the calendar year, the employer may either pay all of the taxes for the employee (which requires grossing-up the check) or advance the funds to the employee to cover the taxes on the fringe benefit items.
Are Fringe Benefits Taxable?
Including Taxable Benefits in Pay
- Any amount the law excludes from pay
- Any amount the recipient paid for the benefit
Fringe Benefits Valuation Rules
Fair Market Value
- IRS on Fringe Benefits: Manufacturing Tax Tips
You can create payroll items to pay employee fringe benefits.
You have an active, up-to-date version of QuickBooks.
To set up a taxable fringe benefit payroll item:
From the QuickBooks menus at the top, click Lists > Payroll Item List.
At the lower left of the Payroll Item List, click the Payroll Item button > New.
Select Custom Setup.
Select Company Contribution or Addition, click Next. (A Company Contribution item will add the value of the fringe to be taxed but not increase the paycheck net pay, an Addition item will add the value of the fringe to be taxed and will increase net pay.)
Type in a name for this item, e.g., "Auto Compensation-Personal Use," click Next.
Select an expense and liability accounts from the drop-down lists, click Next.
From Tax Tracking Type dropdown list, select Fringe Benefits and click Next.
Click Next twice (this will bypass the Calculate based on quantity window).
If the amount will be a set amount, enter that default rate in the first section of the Limit Type window.
If there is a limit on the item, enter that amount in the second section of the Limit Type window, click Finish.
Once you have created the payroll item, choose the scenario that fits how the Fringe Benefit will be paid to the employee:
If reporting the amount on a paycheck where the employee has regular wages to offset the taxes:
If the employee will not be receiving any further wages for the year, and the employer will be loaning the tax amount to the employee:
If the employee will not be receiving any further wages for the year, and the employer will be the one paying for the taxes: