Article Highlights: Qualified Transportation Fringe Benefits (QTFB) Group Term Life Insurance (GTLI) Accident and Health Benefits Flexible Spending Arrangement Exclusion for Qualified Employee Discounts Dependent Care Assistance Program (DCAP) Adoption Assistance Qualified Educational Assistance Working Condition Educational Assistance Travel Expenses Transportation Expenses Moving Expenses Reimbursements for Use of Employee-Owned Vehicles Employer-Provided Vehicles Awards and Prizes Professional Licenses and Dues The tax code allows employers to provide their employees with a variety of tax-free fringe benefits. Not all employers will offer all, or even some, of the possible fringe benefits. But you should check with your employer to see what, if any, fringe benefits might be available and which ones you might benefit from. A fringe benefit is a form of pay (including property, services, cash, or cash equivalent) in addition to stated pay for the performance of services. Under Internal Revenue Code (IRC) Section 61, all income is taxable unless an exclusion applies. Some forms of additional compensation are specifically designated as “fringe benefits” in the IRC; others, such as moving expenses or awards, are addressed by statutory provisions providing for special tax treatment but are not designated as fringe benefits by the IRC. This article uses the term “fringe benefit” broadly to refer to all remuneration other than stated pay for which special tax treatment is available. Fringe benefits for employees are taxable wages unless specifically excluded by the tax code. Employer contributions to retirement plans are certainly one of the most significant benefits employees may receive, but this is a separate topic and is not discussed in this article. The tax rules related to tax excludable fringe benefits and reimbursements are often complex. This article only provides an overview. Please contact this office for further details. Qualified Transportation Fringe Benefits (QTFB) – These benefits include the cost of: Commuter transportation in a commuter highway vehicle Transit passes Qualified parking Employers may provide an employee with any one or more of these benefits at the same time. To the extent the fair market value (FMV) of these benefits does not exceed monthly excludable limits, adjusted annually for inflation, the benefits are excluded from the employee’s income, i.e. they are tax free for the employee. The 2024 tax free QTFBs are limited to $315 per month (combined for the commuter highway vehicle and transit passes exclusions). The monthly limit was $300 in 2023). Any reimbursement more than the monthly limit would be included as taxable income by the employer. Group Term Life Insurance (GTLI) - The cost of the first $50,000 of GTLI coverage provided by an employer is excluded from an employee’s taxable income. Generally, life insurance isn't group-term life insurance unless it is provided, at some time during the calendar year, to at least 10 full-time employees. The cost of employer-paid group term coverage of more than $50,000 is treated as taxable income and added to the employee’s W-2, with the cost, and taxable amount being based on the IRS table illustrated below. This amount may be higher than the employer is paying for the insurance, which creates phantom income. GROUP TERM LIFE INSURANCE Cost of $1,000 of Protection per Month Age Bracket Cost Age Bracket Cost Under 25 $0.05 50-54 .23 25-29 0.06 55-59 .43 30-34 0.08 60-64 .66 35-39 0.09 65-69 1.27 40-44 0.10 70 Plus 2.06 45-49 0.15 - - For older employees, the after-tax cost of the additional coverage frequently exceeds the cost for an individual term policy. It may be appropriate for certain employees to only utilize the first $50,000 in coverage and acquire an individual policy for any additional needed coverage. Accident and Health Benefits - This income exclusion applies to contributions an employer makes to an accident or health plan for an employee, including the following: Contributions to the cost of accident or health insurance including qualified long-term care insurance. Contributions to a separate trust or fund that directly or through insurance provides accident or health benefits. Contributions to Archer MSAs or health savings accounts (HSAs). This exclusion also applies to payments the employer directly or indirectly makes to an employee under an accident or health plan for employees that are either of the following. o Payments or reimbursements of medical expenses. o Payments for specific permanent injuries (such as the loss of the use of an arm or leg). The payments must be figured without regard to the period the employee is absent from work. An accident or health plan is an arrangement that provides benefits for employees, their spouses, their dependents, and their children (under age 27 at the end of the tax year) in the event of personal injury or sickness. The plan may be insured or noninsured and doesn't need to be in writing. An employee for this exclusion can be a current common-law employee, a full-time life insurance agent who is a current statutory employee, a retired employee, a former employee the employer maintains coverage for based on the employment relationship, a widow or widower of an individual who died while an employee, or a widow or widower of a retired employee. Flexible Spending Arrangement - Under a written employer plan (sometimes termed a cafeteria plan), the employee may choose to reduce salary and contribute to an account for medical expenses on a pre-tax basis. Maximum contribution for 2024 is $3,200. Amounts in the account may be used to pay for qualifying medical expenses, generally copays, medication and other out of pocket medical expenses. The contributed amount must generally be used in the year of the contribution or the employee forfeits any balance. However, in recent years there has been a grace period of 2½ months after the end of the plan year to spend an inflation-adjusted carryover amount which is $640 for 2024. Exclusion for Qualified Employee Discounts – This exclusion applies to a price reduction an employer gives to an employee on property or services the employer offers to customers in the ordinary course of the line of business in which the employee performs substantial services. It applies whether the property or service is provided at no charge (in which case only part of the discount may be excludable as a qualified employee discount) or at a reduced price. It also applies if the benefit is provided through a partial or total cash rebate. However, there is a limit on the amount of the discount that can be provided to an employee. An employer can generally exclude the value of an employee discount from the employee's wages, up to the following limits: For a discount on services, 20% of the price the employer charges nonemployee customers for the service. For a discount on merchandise or other property, the employer’s gross profit percentage times the price the employer charges nonemployee customers for the property. For the exclusion to apply, the employee must provide substantial services in the line of business of the employer in which the employer offers the property or services in question to non-employee customers. The exclusion does not apply to highly compensated employees if the qualified employee discounts are available on a discriminatory basis. Dependent Care Assistance Program (DCAP) - This exclusion applies to household and dependent care services the employer directly or indirectly pays for or provides to an employee under a written dependent care assistance program (DCAP) that covers only the employer’s employees. The services must be for a qualifying person's care and must be provided to allow the employee to work. These requirements are basically the same as the tests the employee would have to meet to claim the dependent care credit if the employee paid for the services. For this exclusion, the following individuals are treated as employees: A current employee. A leased employee who has provided services to the employer on a substantially full-time basis for at least a year if the services are performed under the employer’s primary direction or control. The employer if a sole proprietor. A partner who performs services for a partnership. The employer can exclude the value of benefits provided to an employee under a DCAP from the employee's wages provided it is reasonable to believe that the employee can exclude the benefits from gross income. An employee can generally exclude from gross income up to $5,000 ($2,500 if married filing separately) of benefits received under a DCAP each year. However, the exclusion can't be more than the smaller of the earned income of either the employee or employee's spouse. An employer can't exclude dependent care assistance from the wages of a highly compensated employee unless the benefits provided under the program don't favor highly compensated employees. For this exclusion, a highly compensated employee for 2024 is an employee who meets either of the following tests. The employee was a 5% owner at any time during the year or the preceding year. The employee received more than $155,000 in pay for the preceding year. This test can be ignored if the employee wasn't also in the top 20% of employees when ranked by pay for the preceding year. Adoption Assistance - An adoption assistance program is a separate written plan of an employer that meets all the following requirements. It benefits employees who qualify under rules set up by the employer that don't favor highly compensated employees or their dependents. See the dependent care assistance program for a definition of a highly compensated employee. It doesn't pay more than 5% of its payments during the year for shareholders or owners (or their spouses or dependents). The employer gives reasonable notice of the plan to eligible employees. The employee provides reasonable substantiation that payments or reimbursements are for qualifying expenses. The employer must exclude all payments or reimbursements the employer makes under an adoption assistance program for an employee's qualified adoption expenses from the employee's wages subject to federal income tax withholding. However, the exclusion does not apply to wages subject to social security, Medicare, and FUTA taxes. The maximum exclusion for 2024 is $16,810.