In general, fringe benefits are taxed at the fair market value with the tax amount withheld or deducted from an employee’s paycheck. For example, if someone receives an annual bonus of $3,000, it will be reported as income on their W-2 form with the applicable taxes deducted from the corresponding paycheck.
However, the IRS has “special rules for various types of fringe benefits,” which allows certain benefits to be partially or fully tax-exempt. Refer to the IRS website for the most up-to-date information on fringe benefits.