Employee Fringe Benefits

The Internal Revenue Service has clearly defined taxable and non-taxable employee fringe benefits. All taxable fringe benefits, as defined by the Internal Revenue Service, provided to employees has to be reported to the University’s Payroll Department so that proper withholding and tax reporting may occur.

Michigan State University provides fringe benefits to employees. Some benefits are University wide, while others are provided to specific employees by their department. Fringe benefits are a form of pay, by way of property, services, cash or cash equivalent. Certain fringe benefits are charged to departments as part of the payroll process. Please see the Fringe Benefit Charges information at the Payroll web

Unless the benefit is specifically excluded or deferred until a later date under the IRS code, all taxable fringe benefits should be included in the employee’s gross income in the year in which they are received.

Non-taxable Fringe Benefits include:

No additional cost services – Includes any service that is primarily provided for sale to students or third parties of which an employee uses and the university incurs no substantial additional cost in providing the service to the employee. Examples include occasional tickets to an event that has not sold out. IRC 132(b)

De Minimis fringe benefits – Includes property or service provided to an employee both infrequently and that has a value that is small to the extent that accounting for it would be unreasonable and administratively impractical. MSU has defined the amount of a de Minimis benefit as $100 or less. Examples include picnics or group meals, gifts such as pen, mug, etc. IRC 132(e) Reg 1.132-6(b)

Employee discounts – A qualified employee discount that allows the employee to obtain property or service from the University at a price below what the general public is charged. The discount can apply to employees or a group of employees as long as it does not favor highly compensated employees. The discount should not be greater than 20% for services or less than at cost for tangible items, otherwise it may be considered taxable. IRC 132(c)(1)(B)

Working condition fringe benefits – Includes property or service provided to the employee that if the employee had paid for it themselves the payment would have been deductible as a business expense. Examples include business use of club memberships/professional dues (MBP Section 47), publications, meetings, etc. IRC 132(d), Notice 2011-72

Meals and lodging – Under certain circumstances meals and lodging provided to employees on the University’s premise may be non-taxable. See MBP Section 70. IRC 119

Educational tuition assistance – Includes both undergraduate and graduate level provided to employee with certain requirements and limitations. IRC 117(d); IRC 127; IRC 132(d) See Human Resources Tuition Assistance (https://hr.msu.edu/professional-development/tuition-assist.html )

Cell phone and communication devices – As outlined in MBP Section 78 mobile communication devices strictly for business purposes are considered nontaxable when University policy and procedure are followed.

Vehicles – University owned vehicles issued to employees for business use are considered nontaxable. University policy generally states University owned vehicles cannot not be driven for personal use (i.e. commuting, personal errands, etc.) see MBP Section 245.

Other examples of taxable fringe benefits include:

Personal or social use of club memberships

University provided housing per employment contract

Entertainment/Athletic tickets, both single or season, that do not have a documented business purpose nor do they meet the no additional cost exclusion.

Moving Allowances, see MBP Section 53

Employer provided apparel, see MBP Section 52 and Employer provided apparel FAQ