What Constitutes Fringe Benefits for S Corp Shareholders?

by D. Laverne O'Neal, studioD

An S corporation is one of two corporate structures commonly utilized by small businesses. The Internal Revenue Service permits an S corporation to be taxed as if it were a partnership. That means the corporation does not pay taxes on its profits; instead, each shareholder is taxed on his share of the company's profits, which avoids the dilemma of double taxation. In addition to the tax advantages, an S corporation can provide some fringe benefits to its shareholders.

S Corporation Shareholders Defined

The IRS defines an S corporation shareholder as an individual or other entity that owns 2 percent or more of the corporation's stock or more than 2 percent of the voting power at any point during the tax year. An individual, estate, trust, partnership or charitable organization can be an S corporation shareholder.

Group Term Life Insurance

Term life insurance provided by an S corporation to a shareholder is an allowable fringe benefit; however, it is taxable. The coverage must be provided to a group, and it must include a general death benefit. Group-term life insurance should not be "treated as a reduction in distributions to the shareholder," according to the IRS.

Transportation Benefits

Local commute expenses provided to a shareholder are allowable fringe benefits. These reimbursements are not included in shareholder income, which means they are not taxable. Transit and parking passes as well as bicycle commuting reimbursements are possible fringe benefits. Occasional cab fare from the corporate office to the shareholder's home is also allowed.

De Minimis Benefits

De minimis, or minimal, benefits refer to benefits of such little value that accounting for them would not be practical. Examples of de minimis benefits include non-cash holiday gifts "with a low fair-market value,” occasional company parties and picnics, and occasional tickets to theater or sports events. Items such as free donuts or a yearly Christmas goose are considered de minimis benefits. Lunches on company property are another example of minimal benefits. The expenses for these items are tax-deductible to the corporation, and the shareholder does not have to include these benefits in income or pay taxes on them.

About the Author

D. Laverne O'Neal, an Ivy League graduate, published her first article in 1997. A former theater, dance and music critic for such publications as the "Oakland Tribune" and Gannett Newspapers, she started her Web-writing career during the dot-com heyday. O'Neal also translates and edits French and Spanish. Her strongest interests are the performing arts, design, food, health, personal finance and personal growth.

Photo Credits

  • Comstock/Comstock/Getty Images