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Publication 15-B

Employer's Tax Guide to Fringe 


Future Developments(p1)

For the latest information about developments related to Pub. 15-B, such as legislation enacted after it was published, go to

What's New(p1)

Cents-per-mile rule.(p1)
The business mileage rate for 2017 is 53.5 cents per mile. You may use this rate to reimburse an employee for business use of a personal vehicle, and under certain conditions, you may use the rate under the cents-per-mile rule to value the personal use of a vehicle you provide to an employee. See Cents-Per-Mile Rule in section 3.
Qualified parking exclusion and commuter transportation benefit. (p2)
For 2017, the monthly exclusion for qualified parking is $255 and the monthly exclusion for commuter highway vehicle transportation and transit passes is $255. See Qualified Transportation Benefits in section 2.
Contribution limit on a health flexible spending arrangement (FSA).(p2)
For plan years beginning after December 31, 2016, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $2,600. For more information, see Cafeteria Plans in section 1.


Additional permitted election changes for health coverage under a cafeteria plan.(p2)
Notice 2014-55, 2014-41 I.R.B. 672, available at, expands the application of the permitted change rules for health coverage under a cafeteria plan and discusses two specific situations in which a cafeteria plan participant is permitted to revoke his or her election under a cafeteria plan during a period of coverage.
Same-sex marriage.(p2)
A marriage of two individuals is recognized for federal tax purposes if the marriage is recognized by the state, possession, or territory of the United States in which the marriage is entered into, regardless of legal residence. Two individuals who enter into a relationship that is denominated as a marriage under the laws of a foreign jurisdiction are recognized as married for federal tax purposes if the relationship would be recognized as marriage under the laws of at least one state, possession, or territory of the United States, regardless of legal residence. Individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that isn't denominated as a marriage under the law of the state, possession, or territory of the United States where such relationship was entered into aren't considered married for federal tax purposes, regardless of legal residence.
Notice 2013-61 provides special administrative procedures for employers to make claims for refund or adjustments of overpayments of social security and Medicare taxes with respect to certain same-sex spouse benefits before expiration of the period of limitations. Notice 2013-61, 2013-44 I.R.B. 432, is available at You may correct errors to federal income tax withholding and Additional Medicare Tax withheld for prior years if the amount reported on your employment tax return doesn't agree with the amount you actually withheld. This type of error is an administrative error. You may also correct errors to federal income tax withholding and Additional Medicare Tax withheld for prior years if section 3509 rates apply.
Notice 2014-1 discusses how certain rules for cafeteria plans, including health and dependent care FSAs, and health savings accounts (HSAs) apply to same-sex spouses participating in employee benefit plans. Notice 2014-1, 2014-2 I.R.B. 270, is available at
Ordering forms and publications.(p2)
Visit to download forms and publications. Otherwise, you can go to to order current- and prior-year forms and instructions. Your order should arrive within 10 business days.
Tax questions.(p2)
If you have a tax question not answered by this publication, check and How To Get Tax Help at the end of this publication.
Photographs of missing children.(p2)
The IRS is a proud partner with the National Center for Missing & Exploited Children® (NCMEC). Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.


This publication supplements Pub. 15, Employer's Tax Guide, and Pub. 15-A, Employer's Supplemental Tax Guide. It contains information for employers on the employment tax treatment of fringe benefits.

Comments and suggestions.(p2)

We welcome your comments about this publication and your suggestions for future editions.
You can send us comments from
Or you can write to:

Internal Revenue Service
Tax Forms and Publications
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224

We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.
Although we can't respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax forms, instructions, and publications. We can't answer tax questions sent to the above address.

1. Fringe Benefit Overview(p2)

A fringe benefit is a form of pay for the performance of services. For example, you provide an employee with a fringe benefit when you allow the employee to use a business vehicle to commute to and from work.

Performance of services.(p2)

A person who performs services for you doesn't have to be your employee. A person may perform services for you as an independent contractor, partner, or director. Also, for fringe benefit purposes, treat a person who agrees not to perform services (such as under a covenant not to compete) as performing services.

Provider of benefit.(p3)

You’re the provider of a fringe benefit if it is provided for services performed for you. You’re considered the provider of a fringe benefit even if a third party, such as your client or customer, provides the benefit to your employee for services the employee performs for you. For example, if, in exchange for goods or services, your customer provides day care services as a fringe benefit to your employees for services they provide for you as their employer, then you’re the provider of this fringe benefit even though the customer is actually providing the day care.

Recipient of benefit.(p3)

The person who performs services for you is considered the recipient of a fringe benefit provided for those services. That person may be considered the recipient even if the benefit is provided to someone who didn't perform services for you. For example, your employee may be the recipient of a fringe benefit you provide to a member of the employee's family.

Are Fringe Benefits Taxable?(p3)

Any fringe benefit you provide is taxable and must be included in the recipient's pay unless the law specifically excludes it. Section 2 discusses the exclusions that apply to certain fringe benefits. Any benefit not excluded under the rules discussed in section 2 is taxable.

Including taxable benefits in pay. (p3)

You must include in a recipient's pay the amount by which the value of a fringe benefit is more than the sum of the following amounts. The rules used to determine the value of a fringe benefit are discussed in section 3.
If the recipient of a taxable fringe benefit is your employee, the benefit is subject to employment taxes and must be reported on Form W-2, Wage and Tax Statement. However, you can use special rules to withhold, deposit, and report the employment taxes. These rules are discussed in section 4.
If the recipient of a taxable fringe benefit isn't your employee, the benefit isn't subject to employment taxes. However, you may have to report the benefit on one of the following information returns.
If the recipient
receives the benefit as:
An independent contractorForm 1099-MISC, Miscellaneous Income
A partnerSchedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc.
For more information, see the instructions for the forms listed above.

Cafeteria Plans(p3)

A cafeteria plan, including an FSA, provides participants an opportunity to receive qualified benefits on a pre-tax basis. It is a written plan that allows your employees to choose between receiving cash or taxable benefits, instead of certain qualified benefits for which the law provides an exclusion from wages. If an employee chooses to receive a qualified benefit under the plan, the fact that the employee could have received cash or a taxable benefit instead won't make the qualified benefit taxable.
Generally, a cafeteria plan doesn't include any plan that offers a benefit that defers pay. However, a cafeteria plan can include a qualified 401(k) plan as a benefit. Also, certain life insurance plans maintained by educational institutions can be offered as a benefit even though they defer pay.

Qualified benefits. (p3)

A cafeteria plan can include the following benefits discussed in section 2.

Benefits not allowed. (p3)

A cafeteria plan can't include the following benefits discussed in section 2.
It also can't include scholarships or fellowships (discussed in Pub. 970).

Contribution limit on a health FSA.(p4)

For plan years beginning after December 31, 2016, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $2,600.
A cafeteria plan that doesn't limit health FSA contributions to the dollar limit isn't a cafeteria plan and all benefits offered under the plan are includible in the employee's gross income.
For more information, see Notice 2012-40, 2012-26 I.R.B. 1046, available at

"Use-or-lose" rule for health FSAs. (p4)

Instead of a grace period, you may, at your option, amend your cafeteria plan to allow up to $500 of an employee's unused contributions to carry over to the immediately following plan year. For more information, see Notice 2013-71, 2013-47 I.R.B. 532, available at

Employee. (p4)

For these plans, treat the following individuals as employees.
Exception for S corporation shareholders. (p4)
Don't treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder for this purpose is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but don't treat the benefit as a reduction in distributions to the 2% shareholder.

Plans that favor highly compensated employees.(p4)

If your plan favors highly compensated employees as to eligibility to participate, contributions, or benefits, you must include in their wages the value of taxable benefits they could have selected. A plan you maintain under a collective bargaining agreement doesn't favor highly compensated employees.
A highly compensated employee for this purpose is any of the following employees.
  1. An officer.
  2. A shareholder who owns more than 5% of the voting power or value of all classes of the employer's stock.
  3. An employee who is highly compensated based on the facts and circumstances.
  4. A spouse or dependent of a person described in (1), (2), or (3).

Plans that favor key employees.(p4)

If your plan favors key employees, you must include in their wages the value of taxable benefits they could have selected. A plan favors key employees if more than 25% of the total of the nontaxable benefits you provide for all employees under the plan go to key employees. However, a plan you maintain under a collective bargaining agreement doesn't favor key employees.
A key employee during 2017 is generally an employee who is either of the following.
  1. An officer having annual pay of more than $175,000.
  2. An employee who for 2017 is either of the following.
    1. A 5% owner of your business.
    2. A 1% owner of your business whose annual pay is more than $150,000.

Simple Cafeteria Plans(p4)

Eligible employers meeting contribution requirements and eligibility and participation requirements can establish a simple cafeteria plan. Simple cafeteria plans are treated as meeting the nondiscrimination requirements of a cafeteria plan and certain benefits under a cafeteria plan.

Eligible employer. (p4)

You’re an eligible employer if you employed an average of 100 or fewer employees during either of the 2 preceding years. If your business wasn't in existence throughout the preceding year, you’re eligible if you reasonably expect to employ an average of 100 or fewer employees in the current year. If you establish a simple cafeteria plan in a year that you employ an average of 100 or fewer employees, you’re considered an eligible employer for any subsequent year as long as you don't employ an average of 200 or more employees in a subsequent year.

Eligibility and participation requirements.(p4)

These requirements are met if all employees who had at least 1,000 hours of service for the preceding plan year are eligible to participate and each employee eligible to participate in the plan may elect any benefit available under the plan. You may elect to exclude from the plan employees who:
  1. Are under age 21 before the close of the plan year,
  2. Have less than 1 year of service with you as of any day during the plan year,
  3. Are covered under a collective bargaining agreement, or
  4. Are nonresident aliens working outside the United States whose income didn't come from a U.S. source.

Contribution requirements. (p4)

You must make a contribution to provide qualified benefits on behalf of each qualified employee in an amount equal to:
  1. A uniform percentage (not less than 2%) of the employee’s compensation for the plan year; or
  2. An amount which is at least 6% of the employee’s compensation for the plan year or twice the amount of the salary reduction contributions of each qualified employee, whichever is less.
If the contribution requirements are met using option (2), the rate of contribution to any salary reduction contribution of a highly compensated or key employee can't be greater than the rate of contribution to any other employee.

More information. (p5)

For more information about cafeteria plans, see section 125 of the Internal Revenue Code and its regulations.