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.