How to Calculate the Value of Fringe Benefits

by Denise Caldwell
If he drives a company car to the office and back, that's a $3 a day benefit.


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A particularly thorny problem for many small businesses is how to value fringe benefits in relation to other compensation. The upside to fringe benefits is that they aid employers in attracting the best employees, but the downside is that determining how they're calculated, taxed and reported is often a headache. For most fringe benefits, the fair market value is the benchmark, but on other occasions -- most specifically calculations that involve vehicles -- there are additional rules.

Fair Market Value

1. Determine the fair market value by determining the amount the employees would need to pay had they purchased the benefits in the market. Include in the calculation any cost paid toward the benefit by the employee.

2. Use the amount that an employee would need to pay to rent a vehicle to determine the fair market value of a company-provided vehicle. Calculate the lease value by using the chart in IRS publication 15-B (see the Reference section). Use the cents per mile rule only if the vehicle either meets the publication's mileage test or you have a reasonable expectation that the vehicle will be used in the course of business. Multiply the standard mileage rate (found in publication 15-B; for 2011 it's 51 cents per mile) by the total number of miles the employee drives for personal purposes to determine the value of a company car employed for personal use. Include this amount in the employee's wages.

3. Figure the value of any vehicle you provide for the purposes of commuting by multiplying each one-way commute by $1.50. Include this amount in the wages of your employee. Use the commuting rule only if both of the following are true: the vehicle in used in the course of business; and you have a written policy that doesn't allow the employee to drive the vehicle for personal use.

4. Treat fringe benefits as paid on an annual, quarterly, semiannual, or pay period basis. Add fringe benefits to the employee's wages to calculate withholding, or withhold the value of fringe benefits at a rate of supplemental income, which is 25 percent.


  • Do not deduct any fringe benefits for yourself or your partner on your business tax filing if you operate a sole proprietorship because sole proprietorships aren't separate tax entities. Sole proprietors cannot be employees of their own business and therefore can only deduct benefits for employees, whereas other taxable business entities can deduct fringe benefits for owners as well as employees.

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