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
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.