Understand fringe benefits, add them to payroll, and view imputed pay on a paystub.
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Fringe benefits are considered non-cash compensation and taxed as regular wages. These taxable “wages” are called imputed pay. Imputed pay refers to the taxable value of non-cash fringe benefits provided to employees, which is added to gross wages for tax purposes.
Imputed pay is only added to gross wages for taxability purposes. This means team members will not receive the benefit amount as pay—they receive the benefit in another way. They'll be taxed on its value since it's considered part of compensation.
Learn more about fringe benefits from the IRS.
Examples of imputed pay
- Gym memberships and fitness incentives
- Personal use of a company car
- Like other imputed pay, company contributions will generally increase the employee's subject wages for federal and state taxes (except PA state income tax), though specific tax treatment may vary by state.
- Educational assistance (like student loans or tuition discounts) over $5,250 per employee, per year
- Employee discounts
- Employer-provided cell phones
- Moving expense reimbursements (Taxability varies by state. Consult your tax professional for how to best handle these.)
- Note: Members of the military may be exempt from federal taxation.
- Non-statutory stock options
If you do not know whether you need to enter imputed pay in Gusto, work with an accountant to find the correct classification for your situation. Learn more about imputed pay on our blog.
Reimbursing employees for fringe benefits
Employees might receive fringe benefits in different ways. For example, an employer-paid cell phone may be purchased directly by the company. Or, perhaps employees pay out of pocket for gym memberships and you reimburse them.
If you reimburse your team for fringe benefits they've paid for out of pocket, remember that reimbursements (both regular and expense) are not taxed and are not reported as wages. Typically, when you reimburse an employee for a fringe benefit, you should also set up that fringe benefit in Gusto so their compensation is recorded accurately. While reimbursements for certain fringe benefits may not be taxed, it's important to consult with a tax professional to determine the tax implications of each reimbursement.
Record fringe benefits (imputed pay) on payroll If your employees have received a fringe benefit, here's how to record it on payroll so it's properly reported:
- Go to the Benefits section.
- Scroll down to "Custom Benefits."
- Select your benefit type or click Show more custom benefits.
- Add a name for the benefit. This will appear on employee paystubs.
- For "Employee Deduction Per Pay Period," enter $0.
- Under "Company Contribution Per Pay Period," enter a default amount with the value of the non-cash item.
- Click Save & Continue.
- Select which employees should have this benefit.
- Click Save.
- If needed, modify the benefit details for each employee.
The next time you run payroll, we'll record the company contribution for imputed pay and tax the amount as part of the employee's gross wages. It will not be paid out to the employee since this benefit was already compensated in another form.
Report fringe benefits (imputed pay) on payroll retroactively To make your tax filings as accurate as possible, we recommend you add all fringe benefits (like gym stipends or memberships, relocation reimbursements, company car, etc.) to Gusto before we file your quarterly or annual taxes.
To add missing fringe benefits (also known as imputed pay) and record them for the year, follow these steps:
- First, set up the fringe benefit following the instructions in the dropdown above.
- Then, record these benefits by running an off-cycle payroll with the "Net Earnings" field set to $0. Make sure the check date is on or before the last day of the year (December 31) in order to have the amounts reflected in your filings and W-2s for the year.
After running an off-cycle payroll, Gusto will debit your company's account for any associated payroll taxes, which include both employer and employee tax liabilities. Your employee(s) will owe you for their portion of the taxes we debit.
To recoup these funds from the employee(s):
- Set up a one-time post-tax deduction for that employee to withhold that amount from their wages. This will return that amount to the company bank account.
View imputed pay on a paystub Once you add a fringe benefit to Gusto, the benefit amount appears on employee paystubs after you run payroll.
Imputed pay is listed in three places on paystubs:
- As a line item in "Employee Earnings" (included in gross earnings and calculated with the total amount).
- As a line item in "Employer Contributions" (benefit paid by the company).
- As a summary amount under "Summary" (deducted after taxes are taken from your employee's total gross earnings).
Each location on the paystub serves to provide transparency on how the benefit affects gross earnings and tax calculations.
