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Unit 10: Tax Consideration in Specific Managerial Decisions

Fringe benefits shall be deemed to have been provided if the employer has incurred any expense Notes
or made any payment for the purposes of:
1. entertainment;
2. festival celebrations;
3. gifts;

4. use of club facilities;
5. provision of hospitality of every kind to any person whether by way of food and beverage
or in any other manner, excluding food or beverages provided to the employees in the
office or factory;

6. maintenance of guest house;
7. conference;
8. employee welfare;

9. use of health club, sports and similar facilities;
10. sales promotion, including publicity;
11. conveyance, tour and travel, including foreign travel expenses;
12. hotel boarding and lodging;
13. repair, running and maintenance of motor cars;

14. repair, running and maintenance of aircraft;
15. consumption of fuel other than industrial fuel;
16. use of telephone;
17. scholarship to the children of the employees.

The IRC may provide that fringe benefits are non-taxable, partially taxable, or tax-deferred. These

terms are defi ned below.
1. Taxable: Includible in gross income unless excluded under an IRC section. “Taxable” means
the benefit is included in the employees’ wages and reported on Form W-2, Wage and

Tax Statement, and generally is subject to Federal income tax withholding, social security
(unless the employee has already reached the current year social security wage base limit),
and Medicare. If the recipient is an employee, this amount is includible as wages.

Example: Bonuses are always taxable because no IRC section excludes them from
taxation.
2. Non-taxable (excludable): Excluded from wages by a specific IRC section.

Example: Qualified health plan benefits excludable under section 105.

3. Partially taxable: Part is excluded by IRC section and part is taxable. Benefits may be
excludable up to dollar limits, such as the public transportation subsidy under IRC
section 132.
4. Tax-deferred: Benefit is not taxable when received, but subject to tax later.

Example: Employer contributions to an employee’s pension plan may not be taxable
when made, but may be taxed when distributed to the employee.

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