Certified Payroll Professional Practice Exam 2025 – Your All-in-One Guide to Exam Success

The term "taxable fringe benefits" refers specifically to employee benefits that are subject to federal income tax withholding and FICA (Federal Insurance Contributions Act) taxes. This means that when employees receive these benefits, they must report them as income on their tax returns, and the employer is required to withhold applicable federal taxes and FICA taxes, which fund Social Security and Medicare.

Taxable fringe benefits can include items such as bonuses, cash gifts, or certain allowances, among others, that are considered additional compensation to employees. Understanding which fringe benefits are taxable is vital for both employers and employees, as it affects withholding requirements and the overall tax liability for individuals.

Other options provided do not accurately capture the definition of taxable fringe benefits. For instance, benefits that are given at the employer's discretion may or may not be taxable depending on their nature, and those related solely to employee wellness programs typically have specific tax treatments based on IRS regulations. Fringe benefits granted only during holidays do not directly pertain to tax implications and may simply refer to timing rather than their taxable status.