7 Employee Benefits That Are Actually Taxable Income


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With more perks and benefits becoming standard (and with tax day), it's important to know which perks are considered taxable income for your employees. Here are some perks you may not realized are considered taxable by the IRS:

1. Gym or health memberships

ValuePenguin didn't know this one until recently (when the company’s owners offered employees gym memberships), but the IRS considers a gym or health membership a fringe benefit, and therefore taxable income. The IRS will tax you on the fair market value of the gym membership, so if the gym membership is $50 per month, your employees will be taxed on that extra $600 per year.

One exception to this is if the gym facility is on-premise or employer-owned. In this case, employees won't typically be taxed on the gym, and the employer can usually write it off as a deduction. This is how big companies like Google can provide truly free gym memberships for their employees.

2. Business frequent flyer miles converted to cash

You probably knew that cash gifts to employees are considered taxable income, but you probably didn't know that the IRS doesn't care how the cash becomes cash in your employee's hands.

If you have a small business or corporate credit card and you allow employees to convert your business's points or frequent flyer miles for cash, that may be considered taxable income.

3. Season tickets

While providing infrequent or one-off tickets to events is considered a "de minimis" fringe benefit (and not taxable), providing tickets for an entire season can become taxable income. Depending on how expensive the season tickets are, and many for professional sports run to thousands of dollars, this could be a pretty considerable tax burden to your employees.

It may be more cost-effective to your employees to provide the occasional ticket rather than a season pass.

4. Clothing, Other Than A Uniform

If you provide clothing to your employee that can replace everyday clothing (i.e., not a uniform), this may also be taxable. This doesn't include providing company t-shirts once a year or any such small value items, including bags and the like. However, if you frequently give your employees clothing and it amounts to a significant amount, they may need to pay taxes on them.

5. Vacation expenses

With some companies now providing "paid paid vacation" for their employees, you should also know that the IRS considers that a taxable fringe benefit. If your business pays for any vacation expenses for its employees, whether airfare, hotels or meals, this must be included in the employee's gross income.

Another kicker? None of these expenses is deductible to you as the employer.

6. Spousal travel or meals

If your employees are away on business, and have brought along their spouse, it’s a nice gesture to cover the cost for their meals, airfare, or even a trip to the spa or golf course. But as a rule, any such payments will be considered a taxable benefit for the employee.

There are some exceptions to this rule. Namely, the exceptions are if the spouse is also an employee or is there for a genuine business purpose, or if the expense would be deductible by your employee anyway.

Otherwise, any expenses, such as food, lodging or travel, covered for your employee's spouse will be taxed come April.

7. Personal use of an employer vehicle

If you provide cars or other vehicles for employees, the employee's personal use of the vehicle will be taxed. This includes commuting to and from work, running personal errands or letting a non-employee use the vehicle. And it's important to keep good records. Because if you don't keep records on when the employee uses the vehicle for business or personal purposes, then all of the usage will be taxed.

The article 7 Employee Benefits That Are Actually Taxable Income originally appeared on ValuePenguin.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Personal Finance , Taxes , Small Business


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