IRS Publishes 2026 Guide to Fringe Benefits

The IRS published in December 2025 the new version of its “Employer Tax Guide to Fringe Benefits.”

The guide for 2026 defines a fringe benefit, a non-wage form of compensation, as a “form of pay for the performance of services.” Any fringe benefit is taxable and must be included in the employee’s pay unless the law explicitly excludes it.

The One Big Beautiful Bill Act of 2025 included the permanent elimination of tax exclusions from an employee’s income for the following, beginning in tax year 2026:

• Qualified moving expense reimbursements (with certain exceptions for active-duty members of the U.S. armed forces, as well as employees of the national intelligence community); and
• Qualified bicycle commuting reimbursements.

The OBBBA also permanently extended the individual tax rates enacted in 2017 as part of the Tax Cuts and Jobs Act, which in 2026 means the withholding rate on supplemental wages remains at 22% (or 37%, if supplemental wages paid to an employee during the calendar year exceed $1 million).The OBBBA also permanently extended the $5,250 exclusion from taxable income of employer-provided educational assistance for payments made after 2025.

Employees may also deduct two $340 monthly exclusions for transit benefits: one for qualified parking and another for commuter highway vehicle transportation and transit passes.

Updates related to flexible spending accounts include that for plan years beginning in 2026, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $3,400, as well as an increase in the annual dependent care FSA limit to $7,500 from $5,000 (to $3,750 from $2,500 for those who are married filing separately).

Additionally, three executive orders issued in 2025 produced the following guidance:

• Employer-provided artificial intelligence literacy and skill development programs may be excluded from taxable income, provided they maintain or improve an employee’s skills at their current job;
• The IRS will issue refunds for employment tax returns, which employers file with the IRS to report wages paid to employees and the taxes withheld from those wages, to employers via direct deposit; and
• Payments to the federal government must be made electronically.

Employers can no longer deduct for themselves 50% of the expenses associated with providing food and beverages to employees, which applied through 2025. That deduction was eliminated as part of a change approved as part of the Tax Cuts and Jobs Act.