Fundamental Payroll Certification (FPC) Practice Exam

Which type of employee benefit is required for job performance and not taxable?

1. Cash allowances

2. Working condition fringe benefits

3. Performance bonuses

4. Health insurance benefits

The correct answer is: Working condition fringe benefits

Working condition fringe benefits are a specific category of employee benefits that are provided to enable employees to perform their job duties effectively. These benefits are designed to meet business needs and help employees carry out their work responsibilities, which makes them necessary for job performance. Because they serve a business purpose and are considered to have no additional value beyond that necessary for work performance, they are not subject to income or payroll taxes. For example, if a company provides employees with tools, equipment, or other resources necessary for their job, those items qualify as working condition fringe benefits. Since these benefits do not result in economic gain beyond their value for work-related uses, they are not taxed like other forms of compensation, such as cash allowances or bonuses. In comparison, cash allowances and performance bonuses are forms of taxable compensation and do not specifically pertain to the necessary tools required for an employee to perform their job roles. Health insurance benefits, while essential and often considered non-taxable under certain conditions, are provided for health-related purposes rather than job performance directly. Therefore, working condition fringe benefits are distinct in both their requirement for job performance and their tax-free status.