What are Fringe Benefits?
What are Fringe Benefits?
Fringe benefits are any additional payments made by an employer or office to its employees or officers.
Regardless of how it is paid, whether in cash or in kind, fringe benefits are subject to tax as an employment income. This is the case irrespective of whether this payment is made on a recurring basis or just once to the employee. The fringe benefit rules also consider payments made to family members and by entities associated to the employer. Although considered part of the employee's income, the payment of fringe benefits is brought to tax in different ways according to the type of benefit.
Fringe benefits are classified for tax purposes into three categories as per the below:
- Category 1 - Car benefits
- Category 2 - Use of assets including accommodation
- Category 3 - Other benefits
Each type of the above-mentioned fringe benefit has a different tax calculation.
In the case of Category 1 car cash allowance, the annual allowance is taxed on half the amount up to a cash allowance of € 2,340. Any amount in excess of that is taxable in full. In the case of the use of a company car, the fringe benefit is calculated according to a formula that factors in the age and value of the vehicle and whether the employee is also reimbursed for the fuel used. In the case of Category 2 benefits, the benefit value is fully taxable generally based on the higher of the cost (reduced when the asset is 6 years or older) and the market value thereof.
Category 3 benefits include any other benefits offered to the employees by the employer, such as low-interest loans, payment or reimbursement of private costs such as utility bills, school fees, insurance, travel, entertainment, among others.
As the fringe benefit is subject to tax, employers are obliged to identify and calculate the value of the fringe benefits under the correct category on the payslip and FSS forms.