A fringe benefit tax is any tax on a good or a service provided to an employee by an employer that is not included in the employee's regular pay. As a result, these benefits are, in many cases, taxable out of fairness to those employees who don't receive them. Examples of common fringe benefits are company cars or the use of private accommodations for non-business purposes. There are some employee benefits that are not subject to a fringe benefit tax, like cafeteria service or free parking, because they are provided for all employees.
It is common for companies to reward their employees with certain perks that are given in addition to salary. As these perks have a value to the employee and are given as a reward for the employee's work, they are often taxable in the same manner as income is taxable. Since not every worker gets these benefits, the ones who do receive them must pay taxes on them. Employees should be aware of what benefits specifically qualify for a fringe benefit tax so they can prepare accordingly.
The process of levying a fringe benefit tax usually begins with the employer including the benefit received on tax forms submitted to the employee and to the governing tax body. It is incumbent on the employer to determine a taxable value for the benefit that has been provided. For example, an employer who lets an employee stay in a residence that is owned by the company for a weekend and provides travel accommodations as well might determine the value of that trip to be worth $2,000 US Dollars (USD). Once that value is determined, the employee is taxed at the applicable rate.
In some cases, a fringe benefit tax may be levied depending on how a benefit is used by the employee. The most common example of this is when an employer provides an employee with a company car. When the employee uses the car for business purposes, it is generally not a situation requiring that taxes be paid. If the employee uses the car in a non-business situation during his personal life, the employee would likely have to pay taxes on that usage.
Not every benefit provided to employees is subject to a fringe benefit tax. Generally speaking, if all employees receive a certain benefit, that benefit is not taxable. There are also certain benefits whose value is so negligible that they need not be included on tax forms. Employees can consult tax professionals on what constitutes a fringe benefit that must be included on a tax return and what can be dismissed.