Which fringe benefits are nontaxable to an employee?
Author: Alice Gilman
Some fringe benefits are completely tax-free to an employee. Other fringe benefits are tax-free, up to monetary limits. Still other fringe benefits are subject to nondiscrimination rules, which results in the benefit being tax-free to a rank-and-file employee, but taxable to a highly compensated employee.
The following benefits are completely tax-free to all employees, unless noted otherwise:
- Health insurance;
- Working condition fringe benefits;
- De minimis fringe benefits;
- Business use of a company car;
- Qualified moving expenses, but only for members of the US Armed Forces on active duty and their family members, effective January 1, 2018, through December 31, 2025 (Note: Under IRS Notice 2018-75, an employer's reimbursement in 2018 of an employee's qualified moving expenses incurred in 2017 is tax-free.);
- Job-related educational assistance;
- Employer-provided meals and lodging;
- Length-of-service and safety achievement awards, provided they do not include cash, cash equivalents, unrestricted gift cards, vacations, meals, lodging, theater tickets, stocks, bonds, or other securities and similar items, effective January 1, 2018;
- Athletic facilities;
- Outplacement assistance; and
- Identity theft prevention services.
The following fringe benefits are tax-free, up to certain monetary limits:
- Qualified transportation fringe benefits;
- Nonjob-related educational assistance - up to $5,250 a year;
- Dependent care assistance - up to $5,000 a year;
- Adoption assistance; and
- Group-term life insurance - the cost of up to $50,000 a year.
The following fringe benefits are tax-free to a rank-and-file employee, but taxable to a highly compensated employee if the fringe benefits plan is discriminatory:
- No-additional-cost services;
- Qualified employee discounts;
- Dependent care assistance; and
- Tuition reduction.