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
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 all taxes (except PA state income tax).
Educational assistance (including student loans) and tuition reduction
For student loan assistance: Up to $5,250 may be paid to employee tax-free, if qualified. Review IRS guidance here or speak with an accountant to learn more.
Employee discounts
Employer-provided cell phones
Moving expense reimbursements (Taxability varies by state. Consult your tax professional for how to best handle these.)
If you do not know whether you need to enter imputed pay in Gusto, ask your accountant to figure out the right category 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 received a fringe benefit, here's how to record it on payroll so it's properly reported:
Go to Benefits.
Find Custom Benefits.
Select your benefit type or click Show more custom benefits.
Add a name for the benefit. This shows up on employee paystubs.
For Employee Deduction Per Pay Period, enter $0.
For Company Contribution Per Pay Period, put a default amount with the value of the non-cash item.
Click Save & Continue.
Select which employees should get this benefit.
Click Save.
If needed, modify the benefit details for each employee.
When you next run payroll, Gusto will 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.
Add all fringe benefits (like gym stipends or memberships, relocation reimbursements, company car, etc.) to Gusto before we file your quarterly or annual taxes. This helps make your tax filings as accurate as possible.
To add missing fringe benefits (also known as imputed pay) and record them for the year, follow these steps:
Set up the fringe benefit following the instructions in Add fringe benefits (imputed pay) to payroll.
Go to Benefits.
Scroll to Manual payroll deductions and click request a benefit correction.
Click Get started.
Select each employee who needs a fringe benefit correction.
Click Save & continue.
Under Other Benefits, click the checkbox to select the fringe benefit you set up.
Click Save & continue.
You can select a single payroll to report the benefit on.
Click Save & continue.
Under Employer contribution, enter the amount.
Click Save & continue.
Review and click Submit correction.
We’ll review your request within a few days and email you if we need any more information.
Once we process the correction, we may debit your company account for employee and employer payroll taxes. Your employees will owe you money for their part of the taxes. To get this money back from them, set up a one-time post-tax deduction for each employee to withhold that amount from their wages. This will return that amount to the company bank account.
Once you add a fringe benefit to Gusto, the benefit amount appears on employee paystubs after you run payroll.
Imputed pay shows up in three places on pay stubs:
In Employee Earnings. This amount shows as part of total earnings. Taxes are calculated on this total.
In Employer Contributions. This amount represents the cost the company incurred for this benefit.
In Summary. This amount is deducted after taxes are taken from your employee's total gross earnings.