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What Fringe Benefits Am I Paying Taxes On? 
by kmhagen July 22, 2005

Fringe Benefit Exclusions

Fringe benefit exclusion rules exclude part or all of certain benefits from federal income tax. In some cases, they also exclude benefits from social security and Medicare taxes.

Accident or Health Plan

Accident or health plans are arrangements that provide benefits for employees, their spouses, and dependents in the event of personal injury or sickness. Employer contributions may be made toward the cost of accident or health insurance, or to a separate trust or fund that provides accident and health insurance benefits either directly or through an insurance carrier.

Generally the value of coverage provided by your employer is not included in your taxable income for federal income tax purposes or social security and Medicare purposes. This exclusion applies to payments made directly to employees or beneficiaries, and payments made indirectly, on their behalf, and includes reimbursements of medical expenses, and payments for specific injuries or illnesses.

Whose Benefits Are Excluded

The exclusion of these benefits from taxable income applies to current employees, full-time insurance agents (statutory employees), retired employees, former employees for whom coverage is maintained based on the employment relationship, widows and widowers of former employees, and contracted persons (“leased” employees) who have provided services on a substantially full-time basis for at least one year.

Contributions made through a cafeteria plan must be included in income. These would be reported on your W-2.

Exception for Long-term Care Benefits

The cost of long-term care insurance is not exempt from federal income tax if coverage is provided through a flexible spending or similar type of arrangement that reimburses specified expenses up to a certain maximum amount. But these benefits are excluded from social security and Medicare taxes.

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