Employers must enter the value of certain fringe benefits in Boxes 1, 3, and 5 on W-2 forms. Not all fringe benefits for employees are taxable, but most do require that you report them. Elements that affect the value of a fringe benefit include:
- Federal income tax
- Social Security tax
- Medicare tax
- FUTA
A separate form that employers must use to report the value of a fringe benefit is Form 940. The necessary steps are as follows:
- Step 1: Include the value on line 3 of the form.
- Step 2: Exclude some or the entirety of a fringe benefit from taxable income if you do not classify the recipient as an employee.
- Step 3: Do not subject income tax withholding to the fringe benefits of independent contractors.
- Step 4: Review whether you need to report the income on a Form 1099-NEC for contractors or on a Schedule K-1 for partners.
For 2026, the IRS provided increased limits for popular fringe benefits like a $3,400 cap on Health FSAs, $340 monthly limits for transportation or parking, and a $7,500 maximum for Dependent Care Assistance Programs.
People Also Ask
- Can payroll software handle different types of employee benefits and deductions? – Yes, and you should look for software that gives you options for different types of workers.
- How do I report income from employee meal or lodging benefits on a W-2 form? – Any taxable income from these benefits should be reported as wages on the W-2 form and treated as per diem expenses.
Enter fringe benefit values onto entry screens resembling paper W-2 forms using our W-2/1099 Forms Filer software. Download our free 1099-etc Demo software today and learn how you can streamline your reporting process at an affordable price.