Here are seven tax-free benefits that keep cash in employees’ pockets and may provide attractive deductibles for employers.
- Frequent flyer miles. Employees who fly on business can earn miles tax-free when they pay with a personal credit card for reimbursed corporate travel. When used as a rebate, the IRS permits employees to exclude frequent flyer benefits from taxable compensation.
- Non-cash awards and prizes. The IRS allows employees to exclude three types of non-cash awards from employers. Certain employee achievement awards that are a part of a “meaningful presentation” are tax-free as long as the gift does not appear to be disguised wages. Certain prizes or awards transferred to charities are tax-exempt, as are “de minimis awards and prizes,” which are not cash or cash equivalent, of nominal value and provided infrequently.
- Cell phones. Tax-free treatment of cell phones is applicable in cases where employers provide cell phones to employees or where employers reimburse their employees for the business use of personal cell phones without burdensome recordkeeping requirements.
- Meals and lodging on employer premises. Meals are excludable from employee wages if they are provided on an employer’s business premises and for the employer’s convenience. Lodging also can be tax-free for employees if it is provided at the worksite, for the employer’s convenience and is a condition of employment.
- Commuter benefits and free parking. Employers can contribute $125 per month tax-free for public transportation, $240 per month for qualified parking or $365 per month for both public transportation and qualified parking.
- Dependent care assistance. Generally, an employee can exclude from gross income up to $5,000 of benefits received under a dependent care assistance program each year. The exclusion cannot be more than the smaller of the earned income of either the employee or the employee’s spouse.
- Qualified educational assistance. Tuition or educational expenses paid by an employer for an employee under an educational assistance plan are excludable from employee wages if certain IRS requirements are met. An employee cannot receive more than $5,250 per calendar year from his or her employer.
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