Overview: Most employers offer several different types of employee benefits, such as health insurance, sick pay, disability pay, workers' compensation insurance and retirement savings plans. Whether employer and employee contributions and benefit payments received by employees are subject to withholding for certain payroll taxes, such as federal income tax (FIT), Social Security and Medicare (FICA) taxes or federal unemployment (FUTA) tax, varies among benefit types.
Trends: The following important issues have an effect on the taxation of employee benefits:
Author: Rena Pirsos, JD, Legal Editor
The IRS has announced that it will permit employers to set up tax-favored leave-based donation programs to aid victims of Hurricane Harvey. Under such programs, employees can donate some of their accrued vacation, sick or personal leave in exchange for cash payments their employer makes to qualified charitable organizations.
In an information letter, the IRS concludes that benefits an employer provides under its company parking policy are taxable income to the employees that choose to use the benefit.
Two IRS Chief Counsel Advice Memoranda provide good examples of the tax ramifications of wellness program benefits provided under various scenarios.
Some states that require employers to withhold income taxes from employees' wages tie their definitions of "wages" to the federal Internal Revenue Code (IRC). However, many states update their IRC references to a specific date every year or so, while others roll their references into the current version of the IRC. Even with IRC conformity, some states have important exceptions. This Quick Reference chart summarizes each state's IRC conformity reference.
Updated to include information on Qualified Small Employer HRAs, effective January 1, 2017.
Updated to reflect 2017 inflation-adjusted amounts, and 2018 inflation-adjusted amounts for Health Savings Accounts.
The IRS has released the 2017 cost-of-living adjustments (COLAs) to the dollar limitations on benefits and contributions to qualified retirement and deferred contribution plans.
HR guidance on the taxation of employee benefits.