Noncash fringe benefits are generally taxable to the employee unless what is specified by law or policy?

• A. Law or policy.
• B. Employee salary level.
• C. The value of the benefit.
• D. The employer's policy only.

Answer: (A)

The key idea here is that whether a noncash fringe benefit is taxed depends on whether there’s an explicit exemption in law or in an applicable policy. In payroll practice, fringe benefits generally become part of the employee’s taxable income unless a specific legal provision or a documented policy provides an exclusion. So, the presence of a law or a policy that says “this benefit is not taxable” changes the treatment; without such a exemption, the benefit is taxable. This is why the source of the exemption is described as law or policy: those are the authorities that create non-taxable fringe benefits. The amount of the benefit, the employee’s salary level, or the employer’s policy alone don’t determine exclusion unless there’s an applicable law or policy that explicitly states it.