Forget Oktoberfest. Fall is when most companies assess theirprograms, with an eye to making changes for the coming year. It’s also when Payroll begins to assess the damage (taxes, that is) from the current year’s offerings. How to sort everything out? Here’s some help.
Morale boosters. Employees always appreciate a little recognition. Pizza lunches or coffee and doughnuts in the morning can take the edge off edgy times. But don’t go overboard. Coffee and doughnuts are tax-free de minimis benefits because they’re noncash and low value. It’s also difficult to determine who ate what, another characteristic of de minimis fringes.
The IRS has never put a dollar value on de minimis benefits, and neither should you. Other examples of tax-free de minimis fringes include reasonably priced occasional theater or sports tickets provided to employees on a nondiscriminatory basis, and merchandise of low value (e.g., a holiday turkey).
Key: Reasonably priced tickets may exclude tickets to major league sporting events. What de minimis fringes aren’t: season tickets, gift certificates and high-value merchandise.
Gas pains. Some companies provide employees with weekly gas subsidies or prepaid gas cards. Ask Payroll first: Subsidies related to employees’ personal use of vehicles are fully taxable, so employees may end up benefiting very little. Despite their low cost, gas subsidies aren’t de minimis fringe benefits. Reason: They’re cash, and cash is always taxable.
Bon voyage. All-expenses-paid vacations aren’t as popular as they used to be, but some employers still dole them out to executives and high performers. Unfortunately, employees must throw in a good deal of work—more than just checking and responding to email on their smartphones or laptops—while they’re on vacation before any employer-provided vacation is considered a tax-free working condition fringe. Get that checkbook out: The entire value of the trip, including expenses related to employees’ spouses or traveling companions, is taxable to employees.
Wellness incentives. Final regulations allow employers to increase the incentive for employees to participate in wellness plans to 30% (50% for tobacco cessation), up from 20%. A common incentive is reduced employee health insurance premiums, which, like all employer-paid health care, is tax-free.
But almost everything else is taxable. That includes cash rewards, employer-paid gym memberships, gift certificates, magazine subscriptions for individual employees, the cost of nonprescription diet food, fees paid to join weight-reduction programs for employees who haven’t been diagnosed with a medical condition and subsidies for home exercise equipment.
• WHAT’S TAX-FREE? For employees diagnosed with weight-related medical conditions (e.g., obesity, heart disease, high blood pressure), employers can pick up the tab for fees paid to join a weight-reduction group and to attend meetings. For employees who want to quit smoking, you can pay for over-the-counter nicotine patches and gum, etc., as well as medical treatments, including acupuncture, which, in tax code parlance, is a healing service. No medical diagnosis is necessary.
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