taxable fringe benefits - Posted by jenv

Posted by Dave Murray, Ohio CPA on August 01, 2003 at 15:59:49:

I do this calculation a lot for clients and it does save a bit of money. The value of the auto benefit is added to the W-2 and then you have to gross it up for the FICA tax benefit (but not the Federal and state). Numerical example:
Annual car expenses $6,000. Let’s assume someone is in the 27% federal bracket and 3% state. Considering approximately 8% FICA tax, they’d have to be paid a gross of 6,000 / (1-.27-.03-.08) or $9,677 to earn the net 6,000 to pay the expenses personally. But if the corporation paid the expenses directly, it is a taxable non-cash fringe benefit reported on the W-2. So the corporation needs to add 6,000 / (1-.08) or $6,521 to the reported W-2 at the end of the year. [technical note: officially you should gross up the gross to reflect the fact that the corporation also is paying the employee’s share of the FICA tax but for practical purposes we do not and it has never been reversed by IRS upon examination.] The corporation and the employee save the incremental FICA tax, about $250 each in this example, and the employee saves paying federal and state income tax on about $3,156. Usually we make sure the employee / owner has enough withheld out of the regular paychecks to pay the tax on the $6,521 non-cash compensation, though.

taxable fringe benefits - Posted by jenv

Posted by jenv on July 28, 2003 at 04:42:06:

like a company car. I saw this interesting statement recently: “the expenses [of the car] would be deductible by the corporation – and it is cheaper to include them in gross income than to pay for them with after-tax income”. My math says this isn’t true and that the total after-tax cost, including income and FICA taxes, is the same. If somebody could prove me wrong, though, I’d love to see your work.

Re: taxable fringe benefits - Posted by JHyre in Ohio

Posted by JHyre in Ohio on July 28, 2003 at 14:02:51:

Please give us an example with numbers to see whose math makes sense. As it stands, I don’t see your point.

John Hyre