Fringe benefits are considered non-cash compensation and taxed as regular wages. These taxable “wages” are called imputed pay. 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
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.
If your employees have received a fringe benefit, here's how to record it on payroll so it's properly reported:
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.
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:
After you run an off-cycle payroll with the benefit set up, we’ll debit your company's account for any associated payroll taxes. This debit will include employer taxes as well as employee taxes; as a result, your employee(s) will owe you for their portion of the taxes we debit.
To recoup these funds from the employee(s):
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: