The most common benefits that are taxable for income tax withholding include:
- Social Security benefits
- Supplemental unemployment benefits
- Pension distributions
- Health insurance premiums
- Health savings account distributions
- Deferred compensation distributions
- Long-term disability payments
- Paid vacation
Some expected benefits that are nontaxable include:
- Health insurance
- Health savings account contributions
- Flexible spending account contributions
- Deferred compensation contributions
- Unpaid sabbatical leave
- Subsidized meals
An employee's gross income is determined by adding certain types of taxable income and subtracting certain nontaxable income. Some employers use the Social Security Administration's withholding calculator, which can be found on the SSA's website, to determine whether they need to deduct taxes from an employee's received pension, 401(k), or other retirement plan distributions before you reach age 591?2 unless you qualify for one of the exceptions described later.
An employer offers some employee benefits that the employee contributes to part of the cost. Some employee benefits include medical insurance, retirement plans, and life insurance and retirement programs.
Employers do not legally require employee benefits; however, it is strongly encouraged. The reason for this is that when it does occur, the federal Employee Retirement Income Security Act (ERISA) sets minimum standards for most private industry pension and health plans that employers provide to their employees voluntarily. Other benefits, such as holiday pay, are not currently required to be made available by law.
When employees leave a company, employers are obligated to ensure that their health insurance remains active and offer them the opportunity to continue coverage for a limited period. Additionally, medical insurance is a benefit that employees are entitled to under the Consolidated Omnibus Budget Reconciliation Act (COBRA), thus potentially making this a mandatory aspect for employers, with a massive potential fine if they do not comply.
In addition, when an employer provides paid time off (PTO) to its employees, and an employee separates from employment, and the employer provides the employee the opportunity to get paid for any unused PTO the employee still has, there are some rules and regulations, which vary by state, under which the payment must be made. Attorneys experienced in the employee benefits area of law can assist former employees in determining their rights to already established benefits, especially when they are in danger of or have been terminated.