Fair market value definition and meaning
Fair market value determines the value of a non-cash fringe benefit and is generally described as the cost an employee would have to pay for a benefit or service when purchasing it on the open market, without the aid of a discount or special offer.
More about fair market value and its purpose
In the world of human resources and payroll, fair market value usually enters the conversation when an employee receives fringe benefits in addition to the salary their employer provides. Unless the benefit is specifically stated to be exempt, the fair market value of a fringe benefit is an addition to an employee’s total compensation and needs to be appropriately taxed and reported on tax filings.
The fair market value of the fringe benefit does need to be recorded as taxable wages on the employee’s W-2, but it also needs to be reported on the employer’s 940, 941s, and any applicable state tax filings (for unemployment, income tax, and in some case SDI/FLI/PFML).
