Question

Since Fringe Benefits like health insurance are exempt from income taxes and FICA what is the tax effect on the employee and employer?:

Answer 1

In the case of fringe benefits like health insurance, the employee does not have to pay income taxes and FICA on the value of the benefit, while the employer can benefit from tax deductions.

Step-by-step explanation:

In the case of fringe benefits like health insurance, the tax effect on the employee and employer is as follows:

• From the employee's perspective, he or she does not have to pay income taxes and FICA on the value of the fringe benefit. This means that the employee gets to keep more of his or her paycheck.
• From the employer's perspective, the cost of providing the fringe benefit is tax-deductible, which reduces the employer's taxable income. This can lead to lower overall tax liability for the employer.

It's important to note that while the employee may not directly pay income taxes and FICA on the fringe benefit, economists argue that the employer's portion of the taxes could be passed on to the employee in the form of lower wages.