What Are Fringe Benefits? Complete Guide 2025
Fringe benefits: are used to attract and retain the right talent for an organization. They normally reflect the company culture and values
Some fringe benefits: e.g. health and life insurance are not taxable, but others are taxed at fair market value.
What Are Fringe Benefits?
Fringe benefits are additional forms of compensation provided to employees beyond their regular wages, including health insurance, retirement plans, and paid time off (PTO).
Fringe benefits are not necessarily provided to everyone—or the exact employee benefits strategy may be based on factors such as role, seniority, or length of tenure. For example, it’s common for longer-serving employees to ‘earn’ more PTO.
Why Offer Fringe Benefits?
Companies that offer a variety of fringe benefits to improve retention rates, attract the best talent, and maintain the health and well-being of team members.
As I’ll go into, these benefits can also provide tax advantages for both the employer and the employee, making them a cost-effective way to increase compensation and boost employee experience.
Types Of Fringe Benefits
Common
Common fringe benefits include:
- Health insurance
- Dental and vision coverage
- Retirement plans
- Life insurance
- PTO
- Employee discounts
- Company cars
- Tuition reimbursement
- Gym memberships
- Flexible working hours
- Mat/pat leave.
Less common
More niche fringe benefits can include things like:
- On-site childcare
- Pet insurance
- Travel stipends
- Fertility treatments
- Sabbatical leave
- Wellness programs
- Concierge services
- Unlimited paid vacation days
- Volunteer days
- Financial planning services
- Free ice cream (you guessed it, Ben and Jerry’s).
These benefits and perks are often a reflection of the organization’s mission, values, and culture.
Airbnb, for example, provides employees with annual travel stipends, encouraging them to explore the world and experience the company's core product firsthand.
Similarly, outdoor companies REI or Patagonia offer adventure stipends that encourage employees to take part in outdoor activities like rock climbing, hiking, surfing, or skiing.
However, offering fringe benefits may require extra attention to employee benefits liability protection to cover potential additional risks.
Tax Considerations
Many fringe benefits are taxable but some are exempted.
Recipients of taxable fringe benefits include the fair market value (the amount an employee would have to pay a third party to obtain the same benefit in an open market) in their taxable income for the year.
The Internal Revenue Service (IRS) maintains a list called the Employer’s Tax Guide to Fringe Benefits. As of June 2024, the list of fringe benefits excluded from income taxes, and generally Social Security, Medicare, and federal unemployment taxes include:
- Accident and health benefits
- Achievement awards (up to $1,600 for qualified awards)
- Adoption assistance
- Athletic facilities
- De minimis (minimal) benefits
- Dependent care assistance
- Educational assistance
- Employee discounts
- Employee stock options
- Employer-provided cell phones
- Group-term life insurance coverage
- HSAs
- Lodging on your business premises
- Meals
- No-additional-cost services
- Retirement planning services
- Transportation (commuting) benefits
- Tuition reduction
- Working condition benefits.
It’s worth noting, however, that all these exemptions are subject to certain conditions.
For example, dependent care assistance is exempt up to certain limits, $5,000 ($2,500 for a married employee filing a separate return).
Similarly, achievement awards are only exempt up to a value of $1,600 for a qualified plan awards (a written plan or program approved by the IRS that does not discriminate in favor of highly compensated employees) and a value of $400 for non-qualified plan awards.
Valuing Fringe Benefits
To value fringe benefits, you assess their fair market value, which is the cost an employee would incur to purchase the same benefit on their own.
This involves researching comparable market prices, considering any discounts or special arrangements provided by the employer, and calculating the total cost of providing the benefit to the employee.
It really gets quite granular. For example, working condition benefits are taxable to the extent that they are for personal use.
So, if an employee is given a laptop, the taxable income would be the percentage of the laptop's fair market value devoted to personal use. If 30% of its use is personal, the taxable income is 30% of its fair market value.
Bottom Line
Fringe employee benefits plans are great ways to attract and retain talent as well as motivate them and promote their wellbeing.
Like the examples of free ice cream and travel stipends mentioned above, these can be a unique reflection of the organization and used to promote activities that help reinforce the culture.
Some fringe benefits e.g. health and life insurance are not taxable, but others are taxed at fair market value.
If you're operating in new territories, then an employer of record or professional employer organization can help you navigate these particular waters.
You can even obtain benefits certification to improve the ability to structure more appealing fringe benefits for your workforce.