HR Support on Fringe Benefits

Editor's Note: Keep up with regulations on fringe benefits and other payments!

Rena PirsosOverview: Fringe benefits, such as health benefits, company cars, commuter transportation benefits and educational assistance plans, just to name a few, are the icing on the cake in attracting and retaining high quality employees. In this heavily regulated area, however, employers must stay abreast of frequent payroll tax law changes to prevent an otherwise tax-free fringe benefit from becoming fully taxable. Employers must also look out for changes to the special payroll tax rules that apply to other common types of payments such bonuses, severance pay and back pay.


  • Final IRS regulations define marriage in gender-neutral terms: The IRS issued final regulations on September 2, 2016, that define the term "spouse" in a gender-neutral manner under federal law for purposes of employer-provided health and retirement benefits and payroll taxes. The regulations follow up on two Supreme Court decisions that have recognized same-sex marriage at the federal and state levels since 2013.
  • State Payroll Deduction Auto-IRAs: Concern over the low rate of retirement savings among Americans and a lack of access to workplace plans for many workers has led some state governments to create their own savings programs that employers are required to administer. For example, California, Connecticut, Illinois, Maryland and Oregon have developed, or are developing, programs requiring employers that do not offer employees other retirement savings arrangements to automatically enroll employees in tax-favored IRAs funded by payroll deductions. The Department of Labor's Employee Benefits Security Administration (EBSA) issued a final rule in 2016 guiding states on how to design these payroll deduction savings initiatives to avoid the risk of preemption by the Employee Retirement Income Security Act (ERISA), and providing guidance to the employers that eventually may be required to offer such programs to employees.
  • Mandatory commuter benefits on the rise in major metro areas: The employer requirement to offer employees the option of purchasing commuter transit benefits on a pre-tax basis via payroll deduction is a growing trend. San Francisco and surrounding counties have had such laws on the books for years. In 2016, laws requiring employers to offer these benefits to employees took effect in 2016 in New York City and Washington, DC, and Hawaii authorized counties to adopt a commuter benefits mandate. Employers should be aware of the administrative requirements as this is a trend that is not likely to slow down any time soon.

Author: Rena Pirsos, JD, Legal Editor

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