For many people, fringe benefits, or perquisites, are a major reason for owning a business or for working for someone who does. At one time "perks" were such an integral part of the American business experience that when the IRS proposed in the 1970s to require people to pay tax on their fringe benefits, Congress promptly passed a law prohibiting it from doing so. The idea of taxing perks was simply too hot a political potato to be left to the bureaucrats. Ten years and another trillion dollars in national debt later, Congress changed its tune and enacted legislation that taxed most perks, and this law is still in effect today. If a perk is taxable, it is treated as a wage payment. It is subject to social security taxes and income tax withholding. If you provide a taxable perk but do not pay and collect payroll taxes on it, your business will owe the IRS a lot of money if your fringe benefit program is examined in an audit. And as with other failures to keep up with payroll taxes, you may end up paying your employees' taxes.
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Publication information: Book title: Don't Let the IRS Destroy Your Small Business:Seventy-Six Mistakes to Avoid. Contributors: Michael Savage - Author. Publisher: Perseus Publishing. Place of publication: Cambridge, MA. Publication year: 1998. Page number: 65.