The 3 Most Common Fringe Benefit Mistakes on W-2s and How to Fix Them
November 14th, 2025 | 5 min. read
Every November, we hear the same question surface from business owners: "Wait, I need to report WHAT on my employees' W-2s?"
Company cars. Group life insurance. Health insurance premiums for S-Corp owners. These seem straightforward throughout the year. But when December rolls around, you’re scrambling to close out payroll correctly.
The worst part? Most business owners don't realize these benefits need special tax treatment until they're knee-deep in year-end reporting. By then, you're racing against W-2 deadlines, trying to reconstruct a year’s worth of mileage logs, insurance premiums, and benefit values. All while your accountant’s asking for numbers you didn’t think to track.
At Whirks, we see this every year. Missed fringe benefits turn into panicked phone calls in January, amended W-2s, frustrated employees, and IRS penalties that could have been avoided with a simple checklist.
In this article, you’ll learn the three most commonly overlooked fringe benefits, how to report them on your W-2s, and what to do if you’ve been missing them all year. By the end, you’ll have a clear action plan… and no reason to panic.
Why Fringe Benefits Get Overlooked
Your employees will remind you if their paychecks don’t hit their bank accounts. But fringe benefits? Those tend to fly under the radar until someone (usually the IRS or your accountant) points out that something’s missing or that you've been handling them incorrectly for months.
So what exactly is a fringe benfit?
It’s an extra perk you provide to employees beyond their regular wages. Company vehicles, subsidized meals, gym memberships, and even retirement contributions all fall under the fringe benefit umbrella. And some of these benefits have W-2 reporting requirements that catch business owners off guard.
The IRS has published an entire document on this: Publication 15-B, the Employer's Tax Guide to Fringe Benefits. It's not exactly light reading, but it's the definitive guide to understanding which benefits are taxable and which aren't.
The three fringe benefits we’re about to cover are the ones we see business owners overlook most often. And they’re the ones most likely to cause problems during year-end payroll. If any of these apply to your business, now is the time to start gathering your documentation and getting your records in order.
Personal Use of Company Vehicles and the Mileage Tracking Headache
Do your employees drive company-provided vehicles? If so, that’s a great perk! That is, until personal use becomes a tax liability.
If your employees use that company vehicle for personal reasons (yes, even for their daily commute), the IRS considers it a taxable fringe benefit that must be reported on their W-2.
What Counts as Personal Use?
Personal errands, weekend trips, and the daily commute (even short ones) all count. Employees should be tracking that mileage year-round.
For 2025, the IRS standard mileage rate is 70 cents per mile. That means 1,000 miles of personal use throughout the year adds $700 to the employee’s W-2.
Why This Matters
Let's say your sales manager, Sarah, uses a company car to visit clients. But she also drives it to her kids' soccer games on weekends and uses it for her daily 10-mile commute. Over the course of a year, those extra miles add up fast.
If you skip reporting them:
- You're out of compliance with IRS regulations (say hello to penalties).
- Your employee might face an unexpected tax bill (and they’ll probably blame you).
What You Should Do Right Now
If this applies to your business, start communicating with employees about documenting their personal mileage. If they haven’t already, they need to start tracking personal use immediately.
⚠️ S-Corp shareholders: If a 2%+ shareholder uses a company car, the reporting rules differ slightly. These benefits show up on a K-1 or W-2 depending on structure, but they must be reported.
Group Term Life Insurance and the $50,000 Threshold That Trumps Up Employers
Life insurance sounds like a generous, no-strings-attached benefit, and it is. But if your policy provides more than $50,000 in coverage, it becomes a taxable fringe benefit.
That means your employees are taxed on the value of coverage beyond that $50,000 threshold, and it must be reported on their W-2.
How It’s Calculated
The IRS doesn’t just let you plug in the premium amount. Instead, they use age-based rates listed in Publication 15-B to calculate taxable value.
Example: A 45-year-old employee receiving $100,000 in coverage will owe taxes on $50,000 of that (based on the IRS table rates, not your actual premium costs), even though they never received that money as cash.
Why This Gets Missed
Most business owners don't realize this taxable income calculation is happening in the background until they're preparing W-2s. If your payroll system isn't automatically calculating and reporting this throughout the year, it becomes a December scramble to figure out what needs to be added to each employee's W-2.
What You Should Do Right Now
Check your group term life insurance policies. If you offer more than $50,000 in coverage, take these steps:
- Use the IRS table in Publication 15-B to calculate taxable value.
- Add this amount to your employees’ W-2s.
- Proactively communicate with employees so they're not caught off guard.
Not sure how to calculate this correctly? That’s a sign your payroll provider should be doing more for you.
Why S-Corp Health Insurance Premiums Are the Most Misunderstood Fringe Benefit
If you're an S-Corp owner, this one’s for you. This is the most frequently missed fringe benefit we see. And if you get it wrong, it creates real IRS problems.
The core issue: While group health insurance benefits for employees is usually tax-free, S-Corp shareholders with more than 2% ownership aren't treated as regular employees under IRS fringe benefit rules.
How to Report S-Corp Health Insurance on a W-2
If you're a 2%+ S-Corp owner and the company pays for your health insurance:
- You can’t deduct the premiums pre-tax from your paycheck.
- The full amount paid on your behalf becomes taxable income.
- This amount must be reported on your W-2.
Example: If your S-Corp pays $12,000 per year for your family’s health plan, that full $12,000 needs to be added to your W-2 as taxable wages, even though you never saw it as cash.
Why Business Owners Miss This
Most business owners think of health insurance as a business expense (which it is). But they’re often blindsided in January when their accountant explains it also needs to appear as personal income.
What You Should Do Right Now
If you're a 2%+ S-Corp shareholder receiving health insurance through your company:
- Calculate the total premiums your company paid on your behalf in 2025.
- Make sure this amount is added to your W-2 as taxable wages.
- Talk to your tax advisor about the self-employed health insurance deduction, which can help reduce the impact on your personal return.
Pro tip: You can deduct those premiums; you just have to report them as income first.
Other Fringe Benefits That May Trigger W-2 Reporting
Beyond company vehicles, group term life insurance, and S-Corp health insurance, there are several less obvious fringe benefits that could have W-2 reporting requirements.
Before you close out 2025, double-check the following:
- Bonuses and Awards. Some service awards are tax-free, but most cash bonuses are taxable.
- Gym Memberships and Wellness Programs. These are often considered taxable unless part of a medical plan.
- Employee Stock Options. Depending on the type (ISO vs. NSO), these may need to be reported.
- Employee Discounts. Discounts beyond certain thresholds must be reported.
- Moving Expense Reimbursements. After recent tax law changes, most are now taxable.
- Meals Provided for Employer Convenience. Specific IRS rules apply here, so don't assume it's tax-free.
When in doubt, refer to IRS Publication 15-B or consult with your payroll provider.
Don’t Let Fringe Benefits Trip You Up
It’s not uncommon to scramble through year-end payroll wondering what to include on a W-2. Business owners across the country miss fringe benefits every year, and it leads to IRS penalties, frustrated employees, and amended tax forms.
Now that you know what to watch for, take a deep breath. You have time to get this right.
Don’t wait until January. Start now by reviewing your benefits and making sure they’re properly recorded.
Your employees count on accurate W-2s. The IRS expects proper reporting. And you deserve to close out the year knowing your payroll is compliant and complete.
At Whirks, we help hundreds of business owners do this every year. We’ll guide you step-by-step to make sure your W-2s are accurate, compliant, and stress-free.
Need help untangling your W-2s? Reach out to our team.
Thinking about switching payroll providers? Here's how to make a smooth transition.
You don’t have to scramble. We can help you wrap up 2025 with clarity and confidence.
