Robert W Ditmer Financial Support

Fringe Benefits Excluded from Income

 

As discussed in the previous article, all fringe benefits are taxable unless they are specifically excluded from an employee's income. So in this article we would like to provide a list of the most common fringe benefits that can be excluded from income.

 

The following table is current for the 2018 calendar year. In October of each year the IRS issues any changes to the exclusion limits. The descriptions in the table below are general. For detailed information refer to IRS Publication 15-B, Employer's Tax Guide to Fringe Benefits.

 

The following table lists each fringe benefit that can be excluded from an employee's income. There is a brief description and any type of employee that is ineligible for the exclusion follows the description. The codes for ineligible employees are located at the end of the previous article.

 

Accident & Health Benefits (3rd Party)

 

Accident and health plans. Also applies to payments made to an employee under an accident plan. Ineligible employees - S2%.

 

Accident & health benefits (Self-insured)

 

Self-insured plans that do not favor highly compensated employees. Incudes medical care reimbursement plans. Ineligible employees - HCE10%.

 

Achievement awards

 

Length of service or safety achievement awards only. Cannot include cash or intangible property such as vacations, meals, lodging, tickets, stocks, or securities. Limited to a value of $1,600 per year. See chapter 2 of IRS Publication 535, Business Expenses, for more details. Ineligible employees - S2% & HCE$120.

 

Adoption assistance

 

HCEs are ineligible only if the HCE receives more than 5% of all adoption assistance payments made to all employee during the year. All payments must be reported on Form W-2 in Box 12 with Code “T”. For more information see Instructions for Form 8839, Qualified Adoption Expenses.

 

Athletic facilities

 

Facility must be located on premises the employer owns or leases, and it is operated exclusively for the use of current or retired employees, their spouses, and dependent children. Partners in a partnership are treated as employees for this benefit.

 

De Minimis benefits

 

Publication 15-B states that “a de minimis benefit is any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable.” Cash or cash equivalents (such as gift cards) are never excludable. Specific types of de minimis benefits are included elsewhere in this table.

 

Copy machine use

 

De minimis fringe. 85% of overall copier use must be for business purposes.

 

Dependent care assistance

 

$5,000 per year. Value of all payments must be reported in Box 10 of Form W-2. Excess payments must be included in Boxes 1, 3 and 5. Ineligible employees - HCE$120.

 

Educational assistance (Not work related)

 

$5,250 per year. Graduate courses included. Includes the cost of books, equipment, fees, supplies, and tuition. Expenses don't include the cost of a course or other education involving sports, games or hobbies unless the education has a reasonable relationship to the business, or it is required as part of a degree program. Employer must have a qualified written plan. Value of benefit is based on when a course begins, not when benefit is paid. Ineligible employees - HCE$120.

 

Educational assistance (Work related)

 

Course must be related to employee's current job and must help maintain or improve the knowledge or skills required for that job. Reimbursements should be treated as part of an accountable expense reimbursement plan.

 

Employee merchandise discounts

 

Not more than the gross profit percentage times the price charged to non-employee customers. HCE restriction applies only if not available to all employees. Ineligible employees - HCE$120.

 

Employee service discounts

 

Not more than 20% of the price charged non-employee customers. HCE restriction applies only if not available to all employees. Ineligible employees - HCE$120.

 

Employer-provided cell phones

 

De minimis fringe only if there are substantial business reasons for providing the phone.

 

Group-term life insurance

 

$50,000 face value excluded from wages. Excess value subject to federal income tax, but not federal income tax withholding. Excess value subject to FICA taxes, but not subject to FUTA. None of GTL is taxable if (1) the beneficiary is the employer, (2) the beneficiary is a charitable organization, or (3) the employee is permanently disabled. (See the article on this website for more information on GTL.) Ineligible employees - Key; S2%.

 

Health Savings Accounts (HSA)

 

Employer contributions up to specified dollar limits are exempt from federal income tax withholding, FICA taxes, and FUTA. For more information, including restrictions on tax-free status and ineligible employees, refer to IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.

 

Holiday gifts

 

De minimis fringe. Other than cash with low fair market value.

 

Lodging

 

Can be excluded only if (1) it is furnished on business premises, (2) it is furnished for the employer's convenience, and (3) the employee must accept it as a condition of employment. Ineligible employees - S2%.

 

Meals (de minimis)

 

Meal or meal money that has so little value that accounting for it would be unreasonable. Includes such things as coffee, doughnuts, soft drinks, and occasional meals that enable an employee to work overtime.

 

Meals on business premises

 

Meals that are furnished on the business premises and are furnished for the employer's convenience. Ineligible employees - S2%.

 

Moving expenses

 

The Tax Act of 2017 (P.L. 115-97) eliminated the moving expense deduction for tax years beginning after December 31, 2017. Therefore, moving expense reimbursements cannot be excluded from an employee's income. It must be included in the employee's wages at the time it was paid and is subject to income tax withholding. For prior tax years certain moving expenses were deductible, so the article on Moving Expense Reimbursements is still posted on this website.

 

No-additional-cost services

 

Services that are offered to customers in the ordinary course of business that can be offered to employees without incurring any substantial additional costs. Includes excess capacity services, such as airline, bus, or train tickets; hotel rooms; or telephone services provided free or at a reduced price to employees working in those lines of business. HCE restriction applies only if not available to all employees. Ineligible employees - HCE$120.

 

Parties & picnics

 

De minimus fringe. Occasional parties & picnics for employees and their guests.

 

Reciprocal no-additional-cost services

 

Services provided by an unrelated employer with whom the employee's employer has a written agreement, and the unrelated employer also provides no-additional-cost services to its own employees. HCE restriction applies only if not available to all employees. Ineligible employees - HCE$120.

 

Retirement planning services

 

Additional retirement planning advice or information provided to employees or their spouses related to the employer's qualified retirement plan. Does not include services for tax preparation, accounting, legal, or brokerage services.

 

Tickets

 

De minimus fringe. Occasional tickets for entertainment or sporting events.

 

Transportation benefits (de minimus)

 

Occasional transportation fare given to an employee because the employee is working overtime, and the benefit is not based on hours worked.

 

Transportation commuting benefits

 

Exclusion for commuting in a qualified commuter highway vehicle, transit passes, or qualified parking. The qualified bicycle commuting reimbursement was eliminated by the Tax Act of 2017 (P.L. 115-7) for tax years beginning after December 31, 2017. In addition, reimbursements to employees for qualified transportation commuting benefits can no longer be deducted by the employer as a business expense. See IRS Publication 15-B for details and the article on this website.

 

Tuition reduction

 

An educational institution can exclude tuition reductions for qualified employees, dependents, and those retired on disability for undergraduate education. Teaching or research assistants can receive tuition reductions for graduate education. See IRS Publication 970, Tax Benefits for Education, for more information.

 

Typing

 

De minimus fringe. Occasional typing of personal letters by a company secretary.

 

Working condition benefits

 

Property and services provided to an employee so that the employee can perform his or her job.