Avoiding Fringe Benefit Pitfalls: Tax Traps, De Minimis Rules, Correction Procedures, Fiduciary Risks

Businesses provide fringe benefits and perks to enhance employment packages for key employees. These benefits can open the door to a litany of unforeseen penalties, tax traps and personal fiduciary liability that benefits counsel and advisers must plan accordingly to avoid.

Avoiding the pitfalls of fringe benefits involves the careful vetting of specific tax and compliance considerations. Generally, IRC Section 61 provides that fringe benefits are includible as gross income unless otherwise excluded under another provision of the IRC. If the benefit isn't excluded under any provision of the IRC, practitioners must implement mechanisms to avoid unintended tax liability to the recipient.

A fringe benefit that doesn't qualify for an exclusion or tax break can bring about penalties for failure to provide employer contributions for FICA and FUTA, withholdings and deposit taxes on behalf of employees, and accurately reporting an employees' taxable income.

Also, it must be determined whether the fringe benefit included in gross income is considered to be "deferred compensation" under Section 409A. Employers must be certain that their fringe benefits program complies with Section 409A relating to the taxation of nonqualified deferred compensation.

Listen as our panel provides an analysis of key considerations in structuring fringe benefits programs, the tax treatment of these perks, and methods to ensure compliance and avoid penalties.

1. Key considerations in structuring fringe benefits
2. Understanding the de minimis rules and avoiding tax traps
3. Methods in minimizing fiduciary risks in administration
4. Effective correction procedures

The panel will review these and other key issues:

• Challenges in structuring effective fringe benefits programs
• Understanding tax provisions impacting fringe benefits
• Differentiating taxable versus non-taxable fringe benefits
• Implications of Section 409A
• Penalties for noncompliant fringe benefits programs and best practices to avoid them
• Fiduciary liability for breaches