IRS Publication 15B — Employer's Tax Guide to Fringe Benefits

Exception for Scorporation shareholders. Don’t treat a 2% shareholder of an Scorporation as an employee of the corporation for this purpose. A 2% shareholder for this purpose is someone who directly or indirectly owns (for any day during the tax year) more than 2% of the corporation’s stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but don’t treat the benefit as a reduction in distributions to the 2% shareholder. For more information, see Revenue Ruling 91-26, 1991-1 C.B. 184. Plans that favor highly compensated employees. If your plan favors highly compensated employees as to eligibility to participate, contributions, or benefits, you must include in their wages the value of taxable benefits they could have selected. A plan you maintain under a collective bargaining agreement doesn’t favor highly compensated employees. A highly compensated employee for this purpose is any of the following employees.

1. An officer.

2. A shareholder who owns more than 5% of the voting power or value of all classes of the employer’s stock.

3. An employee who is highly compensated based on the facts and circumstances.

4. A spouse or dependent of a person described in (1), (2), or (3).

Plans that favor key employees. If your plan favors key employees, you must include in their wages the value of taxable benefits they could have selected. A plan favors key employees if more than 25% of the total of the nontaxable benefits you provide for all employees under the plan go to key employees. However, a plan you maintain under a collective bargaining agreement doesn’t favor key employees. A key employee during 2026 is generally an employee who is either of the following.

1. An officer having annual pay of more than $235,000.

2. An employee who for 2026 is either of the following. a. A 5% owner of your business. b. A 1% owner of your business whose annual pay is more than $150,000.

Simple Cafeteria Plans for Small Businesses Eligible employers meeting contribution requirements and eligibility and participation requirements can establish a simple cafeteria plan. Simple cafeteria plans are treated as meeting the nondiscrimination requirements of a cafeteria plan and certain benefits under a cafeteria plan. Eligible employer. You’re an eligible employer if you employed an average of 100 or fewer employees during either of the 2 preceding years. If your business wasn’t in existence throughout the preceding year, you’re eligible if you reasonably expect to employ an average of 100 or fewer employees in the current year. If you establish a simple cafeteria plan in a year that you employ an average of 100 or fewer employees, you’re considered an eligible employer for any subsequent year until the year after you employ an average of 200 or more employees. Eligibility and participation requirements. These requirements are met if all employees who had at least 1,000 hours of service for the preceding plan year are eligible to participate and each employee eligible to participate in the plan may elect any benefit available under the plan. You may elect to exclude from the plan employees who:

1. Are under age 21 before the close of the plan year,

2. Have less than 1 year of service with you as of any day during the plan year,

3. Are covered under a collective bargaining agreement if there is evidence that the benefits covered under the cafeteria plan were the subject of good-faith bargaining, or

4. Are nonresident aliens working outside the United States whose income didn’t come from a U.S. source. Contribution requirements. You must make a contribution to provide qualified benefits on behalf of each qualified employee in an amount equal to:

1. A uniform percentage (not less than 2%) of the employee’s compensation for the plan year; or

2. An amount that is at least 6% of the employee’s compensation for the plan year or twice the amount of the salary reduction contributions of each qualified employee, whichever is less. If the contribution requirements are met using option (2), the rate of contribution to any salary reduction contribution of a highly compensated or key employee can’t be greater than the rate of contribution to any other employee. More information. For more information about cafeteria plans, see section 125 of the Internal Revenue Code and its regulations.

2. Fringe Benefit Exclusion Rules This section discusses the exclusion rules that apply to fringe benefits. These rules exclude all or part of the value of certain benefits from the recipient’s pay. In most cases, the excluded benefits aren’t subject to federal income tax withholding, social security tax, Medicare tax, federal unemployment tax under the Federal Unemployment Tax Act (FUTA), or Railroad Retirement Tax Act (RRTA) taxes and aren’t reported on Form W-2. Publication 15-B (2026) 5