Introduction
Taxable Non-Cash Benefits are fringe benefits provided to employees in the form of goods, services, or other non-monetary rewards, rather than cash, and are subject to taxation. Examples of taxable non-cash benefits include:
- Personal Use of a Company Car: If an employee uses a company-provided car for personal reasons, the value of this personal use is considered taxable income.
- Housing Provided by the Employer: If an employer provides housing, the fair market value of the housing may be taxable unless it meets certain exceptions.
- Group Term Life Insurance: Life insurance coverage over a certain amount (e.g., $50,000) is taxable.
- Gift Cards: Even though they are not cash, gift cards are considered a cash equivalent and are therefore taxable.
- Certain Employee Discounts: Discounts on goods or services provided by the employer that exceeds a specified threshold can be taxable.
This article will explain how to set up taxable non-cash benefits within Empeon Workforce to ensure that they are taxed and reported correctly. For assistance in determining which fringe benefits are taxable, and specifically those that are non-cash benefits, please reference the IRS's Tax Guide to Fringe Benefits and consult with your CPA or a qualified tax professional.
Configuring Taxable Non-Cash Benefits
The first step to setting up a Taxable Non-Cash Benefit is to first set up a Deduction Code for it. When adding the deduction for a Non-Cash benefit, the Deduction Type should be set to General Post-Tax Deduction. Then enter a Unique Deduction Code and Deduction Description.
Once the deduction has been created, the next step is to add an Earning Code representing the same non-cash benefit. When adding the earning in the General Settings, the Earning Type might vary based on the type of non-cash benefit being set up. For most non-cash benefits, such as a Gift Card, selecting Regular is the appropriate type. However, in the case of Group Term Life, there is a specific Earning Type for GTL that should be used.
Address the rest of the Earning Code General Settings accordingly and then click Next to move on to the Calculation Settings. In this section of the earning code setup, there is a dropdown under Deduction Match; select the matching deduction for the non-cash earning benefit.
The Deduction Match will add the earning to the employee's taxable wages for reporting purposes while simultaneously deducting it so that it is not paid out on their paycheck. This ensures that the non-cash benefit is reported for tax purposes but not included on the employee's paycheck.
To set up a non-cash benefit as a recurring earning, be sure to assign it as a Fringe Benefit on the employee's profile. For more instructions on how to accomplish this, please refer to Empeon's article Fringe Benefits & Employee Auto Pays.