Is there such a thing as a free lunch? When it comes to employee fringe benefits and the tax code, there just may be. All too often, when I'm working on small business books, I see payments made to employees that should be added to the employees' paychecks and are therefore taxable to the employees. I've even seen large, publically traded companies screw this up on occasion, so it's no surprise that small businesses struggle with what's taxable and what's not.The first rule of fringe benefits is that they must be offered to all employees in order to be tax free to the employee. For example, airline workers can receive free flights and hotel workers can receive free rooms, but the companies must offer these benefits to all employees, not just the executives or highly compensated employees. Similarly, price discounts on products offered to all employees are tax free, as long as the discount doesn't exceed the firm's gross profit or 20 percent of the price that customers pay.Transportation benefits are often tricky. If an employee is allowed to drive a company car, any personal use of that car must be tracked and added to their paycheck. Parking allowances can be tax free up to $230 per month, unless you are a partner, 2 percent shareholder or independent contractor, in which case you are always taxed on the benefit. For the most part, if you use your personal vehicle for work and your employer reimburses you a dollar amount per mile driven, then the employer can deduct that amount and it's not taxable to the employee. But, if the employer simply pays out a set allowance with no respect to actual miles driven, then the benefit is deductible by the employer but taxable to the employee.Many generous employers offer education benefits, but they don't always know the tax ramifications. For example, tuition paid for job-related courses is tax free to the employees, but if the classes are meant to meet minimum requirements or qualify for a new line of work, such as graduate school, they are not usually considered job related and therefore are taxable to the employee. Companies can skirt this if they set up a written reimburseable plan, in which case the first $5,250 of tuition is tax free. One special benefit available to teachers is that their children can receive tuition breaks from their school tax free, as long the benefit is available to all staff and not just the highest paid employees. Unfortunately, this break does not apply to graduate school tuition, only undergraduate.By no means am I suggesting that employers not offer benefits. There are some generous employers out there, and I hope they continue to support their employees. However, knowing the tax rules can help keep both employer and employee out of hot water with the IRS.Michele Knight, owner of Knight Accounting & Technology, is a CPA and QuickBooks ProAdvisor based in Dillon. For more info and to contact her, visit www.cpamichele.com.