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
Two IRS Chief Counsel Advice Memoranda provide good examples of the tax ramifications of wellness program benefits provided under various scenarios.
Updated to include the terminal charge and SIFL mileage rates for the first half of 2017.
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.
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.
Updated to reflect changes in the foreign earned income and housing cost exclusion amounts.
The IRS has released Revenue Procedure 2016-55, which provides the annual inflation adjustments to the employer-provided fringe benefit limitations and personal income tax-related amounts.
The IRS has issued Notice 2016-58 listing the 2016-2017 optional 'high-low' federal per diem rates an employer may use to reimburse expenses incurred by employees who travel on business to locations within the Continental US, and the 'special' federal meals and incidental expenses (M&IE) per diem rates that apply to the transportation industry and the incidental-expenses-only rate.
On September 2, the IRS released immediately effective final regulations that define the term "spouse" in a gender-neutral manner under federal law. The regulations follow up on two Supreme Court decisions that have recognized same-sex marriage at the federal and state levels since 2013.
HR guidance on the taxation of employee benefits.