Aside from the usual social security benefits, an employee can get a lot more benefits depending upon the employer. Due to this fact, all employers are required to pay the fringe benefit tax. When you speak of fringe benefit tax, it refers to the taxes paid by the employer to the government for the fringe benefits they are providing to their employees. Since this kind of income benefit is non-taxable for the employees, the employers are the ones who pay for the taxes.
The fringe benefit tax applies to all employers regardless whether they are government bodies, partnerships, sole traders or corporations. However, there are some employers that may be exempt from this tax responsibility such as public benevolent institutions.
When is Fringe Benefit Tax Necessary?
Since there are a number of benefits an employer can provide to an employee, the employer is only required to pay the fringe benefit taxes in cases where:
- A benefit has been provided.
- The benefit has been provided in respect to the employment of the employee.
- The benefit has been provided by the employer, an associate of the employer, or a third party under certain arrangements.
- The benefit has been provided to the employee or his corresponding beneficiaries.
Some of the major benefits that will be liable to a fringe benefit tax include:
- Motor vehicles.
- Low-interest loans.
- Free or discounted goods and services such as transportation and health care.
- Employer contributions to accident benefits, death benefits, disability benefits and the like.
However, there are actually some exemptions in terms of the benefits that need to be liable for fringe benefit tax. These include:
- Cash remuneration such as salary and bonuses.
- Benefits that are given in place of a non-taxable cash allowance.
- Free board and lodging.
- Private use of any of the employer-leased or owned tools, given that the tool does not exceed a cost of $5,000.
- Benefits that arise due to health and safety obligations.
How is Fringe Benefit Tax Calculated?
The tax payable for each fringe benefit is determined by the grossed-up value of the benefit itself. There is a formula that is being followed to calculate the tax value, which is the total taxable value divided by the difference of the fringe benefit rate from one.
However, there are instances that the taxable value of a fringe benefit can be reduced. This is true if the employee had made an expense but was not reimbursed. One good example here is the use of mobile phones wherein the company only reimburses all expenses made for business calls.
In addition to that, a taxable value can also be reduced through employee contribution. This happens when the employee contributes to any cost that was provided by the employer. In short, this is when the employee pays a part of the fringe benefit he received.
In general, the fringe benefit tax is true to all and needs to be paid off yearly. No matter if an employer needs to pay other kinds of taxes, this fringe benefit tax is a responsibility of the employers not only to the employees but also more importantly, to the government.