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Employee Benefits Can Save On Taxes

Companies have until April 15, 2019 to submit corporate tax returns for income received in 2018. Businesses may use Form 1120 or request a six-month extension by filing Form 7004 and submitting a deposit for the amount of estimated tax owed.

Employers did you know that you can save on taxes by providing your valued employees with employee benefits? Just like wages, annual salaries, commissions, and bonuses you pay to employees the cost of employee benefits is tax deductible. There are also tax savings to the employment tax by offering employee benefits instead of raising employee's compensation and increasing employment taxes.

For example, as an employer you pay 6.2% for Social Security taxes on the first $128,400 of wages (maximum tax is $7,960.80) in 2018. In addition, employers pay 1.45% Medicare tax on all compensation.

There are many types of employees benefits that are treated as tax-free compensation and are exempt from Social Security and Medicare (FICA) taxes, albeit health insurance and qualified retirement plans are the most popular.

  • Health Insurance - Health insurance is by far the single most important tax qualified employee fringe benefit. Health insurance includes providing employees with health, dental, and vision insurance, and paying for uninsured health-related expenses. Thus lowering the amount of FICA tax payments for both employees and employers.

  • Cell phones - if the primary purpose for providing to employees to for business.

  • De minimis fringe benefits - such as coffee in the employee break room, flowers for a personal occasion, and occasional tickets for entertainment events are some examples.

  • Achievement awards - set dollar limits for Length-of-service awards that do not exceed $400 per employee for non-qualified plan awards and do not exceed a total of $1,600 a year for all awards of any kind.

  • Educational assistance - non-job related assistance is exempt up to $5,250 each year under Section 127.

  • Dependent care assistance - exempt up to $5,000 annually (per family), if employer-paid.

  • Group term life insurance - up to $50,000 is exempt and coverage for spouse or dependents is exempt up to $2,000.

  • Transportation benefits - cost for free parking, transit passes, and van pooling is tax-free up to ($260 per month in 2018). In 2019 that increases to $265 per month.

  • Health Savings Accounts (HSA) - Employers contributing to an employee's HSA account are exempt up to $3,450 for self-only coverage and $6,900 for family coverage), in 2018.

  • Meals - if provided on the "employer's business premises".

  • Retirement planning services

  • Moving reimbursements - If an employer is relocating a new employee and pays for moving expenses.

As an employer, these additional fringe benefits provide value to employees while saving taxes.

Happy Tax Filing!

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