Is this taxable? Benefits beyond cash wages
Posted March 8, 2017
By Ed Zalewski, PHR, editor, J. J. Keller & Associates
Most payments given to employees count as taxable income, unless the Internal Revenue Service (IRS) provides a specific exclusion. Wages, commissions, bonuses, and other compensation must be reported and taxed. Other forms of taxable income include:
- Gift cards or cash equivalents such as prizes, services, and goods.
- Awards given by a vendor or supplier to retail salespeople for selling the vendor’s product.
- Employer-provided cell phones that are not primarily for business use (e.g., given as a perk).
A few exclusions allow you to provide incentives or assistance without counting the payment as taxable income. These include:
- Achievement awards. A gift (other than cash or cash equivalent) given as an award for length of service or safety may be excluded from income. For example, you might provide a watch or a set of lawn furniture to recognize a milestone. These awards may be excluded from income if given no more frequently than every five years, and if delivered as part of a meaningful presentation. Items valued up to $1,600 may be excluded.
- Commuting costs. You may provide up to $255 per month for costs of commuting in a vehicle that seats at least six adult passengers, and up to $255 per month for parking that you provide on or near your business premises, without counting the payment as income.
- Moving or relocation expenses. If an employee must move at least 50 miles for a new job or transfer and works at the new location for at least 39 weeks, you may reimburse any moving expenses without counting the payment as taxable income.
- Cell phones issued for business. If a job requires a cell phone, you may provide a phone without counting the value as taxable income. If the employee uses the phone for personal reasons, the value of personal use may also be excluded from income.
- COBRA subsidies. If a current employee loses eligibility for health coverage, or if a former employee elects COBRA coverage, you may choose to pay all or part of the premium. Those payments may be excluded from income just like any other employer-paid share of health insurance premiums – even when paid for former employees.
If you are thinking of offering any of these benefits, consider the needs of your workforce. For example, low-wage workers may value commuting assistance, while long-term employees may feel more appreciated with the presentation of achievement awards.
The bottom line is this: A number of options allow you to provide recognition or financial support without affecting employees’ taxable income.
About the author:
Ed Zalewski is a certified Professional in Human Resources and an editor at J. J. Keller & Associates, a nationally recognized compliance resource company that offers products and services to address the range of responsibilities held by human resources and corporate professionals. Zalewski specializes in employment law topics such as the Fair Labor Standards Act, employee benefits, and discrimination and harassment. He is the author of J. J. Keller’s FLSA Essentials guidance manual and BottomLine Benefits & Compensation newsletter. For more information, visit www.jjkeller.com/hr.