Taxes for a fringe benefits adjustment

Generally speaking, fringe benefits increase the amount of payroll taxes owed by employees.

• If you include fringe benefits on a regular paycheck, QuickBooks Online Payroll reduces the net pay by the amount of the payroll taxes owed.
• If you process fringe benefits separately from your payroll through a fringe benefits adjustment, there is no pay available to cover the employee's taxes on the fringe benefits. You'll need to tell us how you want to pay for the taxes.

For the second case, you have two options for paying the taxes:

• Yes, my business will pay the taxes:

  Pay the employee's taxes yourself by increasing the amount of payroll taxes paid by your business. This is sometimes called “grossing up for taxes.” It means that you, the employer, will pay more payroll taxes overall. But you might have to do this if your employee no longer works for you or if you don't want your employee to have to pay taxes on the fringe benefit.

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  • QuickBooks Online Payroll will increase the payroll taxes for you, the employer. We will increase the employee's gross by adding the payroll taxes you paid. Note that your employee will still have to pay tax on the payroll tax you paid on their behalf.
  • You only have the option to pay the employee’s taxes on group-term life insurance or on personal use of company car. QuickBooks Online Payroll doesn't give you the option of paying the employee's taxes on S-corporation owner health benefits, which are subject only to income tax withholding.
• No, my employee will pay the taxes:

  Collect the employee's taxes from the employee (for example, by deducting the amount from future paychecks). This won't change the amount of taxes paid by you or your employee. It will reduce the employee’s net pay, however, when you collect the taxes.

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  • We will record the amount of the employee's taxes as a loan from you to the employee at the time that you create the Fringe Benefits Adjustment transaction.
  • If you wish, you can collect the amount of the loan from your employee's subsequent paychecks by entering the repayment amount as an Employee Taxes Paid by Employer deduction. If your employee repays you outside of payroll, simply run a second check for a prior payroll with the amount of the repayment entered as a "Reimbursement," no other wages, and enter the amount of the Employee Taxes Paid by Employer deduction.

If you pay fringe benefits, be sure to review your workers' compensation insurance. In some cases, part or all of fringe benefits or employee taxes paid by the employer may be subject to workers' compensation insurance.

See also

• Make a fringe benefits adjustment
• Payroll topics

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