- Publication 15-B - Introductory Material
- Publication 15-B - Main Content
- 1. Fringe Benefit Overview
- Performance of services.
- Provider of benefit.
- Recipient of benefit.
- Are Fringe Benefits Taxable?
- Cafeteria Plans
- Qualified benefits.
- Benefits not allowed.
- Contribution limit on a health FSA.
- "Use-or-lose" rule for health FSAs.
- Exception for S corporation shareholders.
- Plans that favor highly compensated employees.
- Plans that favor key employees.
- Simple Cafeteria Plans
- 2. Fringe Benefit Exclusion Rules
- Accident and Health Benefits
- Accident or health plan.
- Special rule for certain government plans.
- Exception for S corporation shareholders.
- Exclusion from wages.
- Exception for certain long-term care benefits.
- S corporation shareholders.
- Exception for highly compensated employees.
- COBRA premiums.
- Achievement Awards
- Adoption Assistance
- Athletic Facilities
- De Minimis (Minimal) Benefits
- Dependent Care Assistance
- Educational Assistance
- Employee Discounts
- Employee Stock Options
- Employer-Provided Cell Phones
- Noncompensatory business purposes.
- Cell phones provided to promote goodwill, boost morale, or attract prospective employees.
- Additional information.
- Group-Term Life Insurance Coverage
- Exception for S corporation shareholders.
- The 10-employee rule.
- Exclusion from wages.
- Coverage over the limit.
- Coverage for dependents.
- Former employees.
- Exception for key employees.
- S corporation shareholders.
- Health Savings Accounts
- Employer contributions.
- Nondiscrimination rules.
- Partnerships and S corporations.
- Cafeteria plans.
- Reporting requirements.
- Lodging on Your Business Premises
- De Minimis Meals
- Employer-operated eating facility for employees.
- Exclusion from wages.
- Exception for highly compensated employees.
- Meals on Your Business Premises
- On your business premises.
- For your convenience.
- Meals excluded for all employees if excluded for more than half.
- Food service employees.
- Employees available for emergency calls.
- Short meal periods.
- Proper meals not otherwise available.
- Meals after work hours.
- Meals you furnish to promote goodwill, boost morale, or attract prospective employees.
- Meals furnished on nonworkdays or with lodging.
- Meals with a charge.
- S corporation shareholder-employee.
- Moving Expense Reimbursements
- No-Additional-Cost Services
- Substantial additional costs.
- Reciprocal agreements.
- Exclusion from wages.
- Exception for highly compensated employees.
- Retirement Planning Services
- Transportation (Commuting) Benefits
- De Minimis Transportation Benefits
- Qualified Transportation Benefits
- Tuition Reduction
- Working Condition Benefits
- 3. Fringe Benefit Valuation Rules
- General Valuation Rule
- Cents-Per-Mile Rule
- Regular use in your trade or business.
- Mileage test.
- Consistency requirements.
- Items included in cents-per-mile rate.
- Commuting Rule
- Lease Value Rule
- Consistency requirements.
- Annual Lease Value
- Safe-harbor value.
- Items included in annual lease value table.
- Items not included.
- 4-year lease term.
- Using the special accounting rule.
- Transferring an automobile from one employee to another.
- Prorated Annual Lease Value
- Daily Lease Value
- Unsafe Conditions Commuting Rule
- 4. Rules for Withholding, Depositing, and Reporting
- Valuation of fringe benefits.
- Choice of period for withholding, depositing, and reporting.
- Transfer of property.
- Withholding and depositing taxes.
- Additional Medicare Tax withholding.
- Amount of deposit.
- Paying your employee's share of social security and Medicare taxes.
- Special accounting rule.
- Conformity rules.
- Special rules for highway motor vehicles.
- Election not to withhold income tax.
- Amount to report on Forms 941 (or Form 944) and W-2.
- How To Get Tax Help
- Preparing and filing your tax return.
- Getting tax forms and publications.
- Getting a transcript or copy of a return.
- Resolving tax-related identity theft issues.
- Making a tax payment.
- What if I cant pay now?
- Understanding an IRS notice or letter.
- Contacting your local IRS office.
- Watching IRS videos.
- Getting tax information in other languages.
- The Taxpayer Advocate Service Is Here To Help You
- Publication 15-B - Additional Material
For the latest information about developments related to Pub. 15-B, such as legislation enacted after it was published, go to IRS.gov/pub15b.
Cents-per-mile rule. The business mileage rate for 2017 is 53.5 cents per mile. You may use this rate to reimburse an employee for business use of a personal vehicle, and under certain conditions, you may use the rate under the cents-per-mile rule to value the personal use of a vehicle you provide to an employee. See Cents-Per-Mile Rule in section 3.
Qualified parking exclusion and commuter transportation benefit. For 2017, the monthly exclusion for qualified parking is $255 and the monthly exclusion for commuter highway vehicle transportation and transit passes is $255. See Qualified Transportation Benefits in section 2.
Contribution limit on a health flexible spending arrangement (FSA). For plan years beginning after December 31, 2016, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $2,600. For more information, see Cafeteria Plans in section 1.
Additional permitted election changes for health coverage under a cafeteria plan. Notice 2014-55, 2014-41 I.R.B. 672, available at IRS.gov/irb/2014-41_IRB/ar12.html, expands the application of the permitted change rules for health coverage under a cafeteria plan and discusses two specific situations in which a cafeteria plan participant is permitted to revoke his or her election under a cafeteria plan during a period of coverage.
Same-sex marriage. A marriage of two individuals is recognized for federal tax purposes if the marriage is recognized by the state, possession, or territory of the United States in which the marriage is entered into, regardless of legal residence. Two individuals who enter into a relationship that is denominated as a marriage under the laws of a foreign jurisdiction are recognized as married for federal tax purposes if the relationship would be recognized as marriage under the laws of at least one state, possession, or territory of the United States, regardless of legal residence. Individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that isn't denominated as a marriage under the law of the state, possession, or territory of the United States where such relationship was entered into aren't considered married for federal tax purposes, regardless of legal residence. Notice 2013-61 provides special administrative procedures for employers to make claims for refund or adjustments of overpayments of social security and Medicare taxes with respect to certain same-sex spouse benefits before expiration of the period of limitations. Notice 2013-61, 2013-44 I.R.B. 432, is available at IRS.gov/irb/2013-44_IRB/ar10.html. You may correct errors to federal income tax withholding and Additional Medicare Tax withheld for prior years if the amount reported on your employment tax return doesn't agree with the amount you actually withheld. This type of error is an administrative error. You may also correct errors to federal income tax withholding and Additional Medicare Tax withheld for prior years if section 3509 rates apply.Notice 2014-1 discusses how certain rules for cafeteria plans, including health and dependent care FSAs, and health savings accounts (HSAs) apply to same-sex spouses participating in employee benefit plans. Notice 2014-1, 2014-2 I.R.B. 270, is available at IRS.gov/irb/2014-2_IRB/ar13.html.
Ordering forms and publications. Visit IRS.gov/forms to download forms and publications. Otherwise, you can go to IRS.gov/orderforms to order current- and prior-year forms and instructions. Your order should arrive within 10 business days.
Tax questions. If you have a tax question not answered by this publication, check IRS.gov and How To Get Tax Help at the end of this publication.
Photographs of missing children. The IRS is a proud partner with the National Center for Missing & Exploited Children® (NCMEC). Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.
A fringe benefit is a form of pay for the performance of services. For example, you provide an employee with a fringe benefit when you allow the employee to use a business vehicle to commute to and from work.
Any fringe benefit you provide is taxable and must be included in the recipient's pay unless the law specifically excludes it. Section 2 discusses the exclusions that apply to certain fringe benefits. Any benefit not excluded under the rules discussed in section 2 is taxable.
A cafeteria plan, including an FSA, provides participants an opportunity to receive qualified benefits on a pre-tax basis. It is a written plan that allows your employees to choose between receiving cash or taxable benefits, instead of certain qualified benefits for which the law provides an exclusion from wages. If an employee chooses to receive a qualified benefit under the plan, the fact that the employee could have received cash or a taxable benefit instead won't make the qualified benefit taxable.
Generally, a cafeteria plan doesn't include any plan that offers a benefit that defers pay. However, a cafeteria plan can include a qualified 401(k) plan as a benefit. Also, certain life insurance plans maintained by educational institutions can be offered as a benefit even though they defer pay.
It also can't include scholarships or fellowships (discussed in Pub. 970).
Eligible employers meeting contribution requirements and eligibility and participation requirements can establish a simple cafeteria plan. Simple cafeteria plans are treated as meeting the nondiscrimination requirements of a cafeteria plan and certain benefits under a cafeteria plan.
This section discusses the exclusion rules that apply to fringe benefits. These rules exclude all or part of the value of certain benefits from the recipient's pay.
In most cases, the excluded benefits aren't subject to federal income tax withholding, social security, Medicare, federal unemployment (FUTA) tax, or Railroad Retirement Tax Act (RRTA) taxes and aren't reported on Form W-2.
This section discusses the exclusion rules for the following fringe benefits.
Accident and health benefits.
De minimis (minimal) benefits.
Dependent care assistance.
Employee stock options.
Employer-provided cell phones.
Group-term life insurance coverage.
Health savings accounts (HSAs).
Lodging on your business premises.
Moving expense reimbursements.
Retirement planning services.
Transportation (commuting) benefits.
Working condition benefits.
See Table 2-1 for an overview of the employment tax treatment of these benefits.
|Treatment Under Employment Taxes|
|Type of Fringe Benefit||Income Tax Withholding||Social Security and Medicare (including Additional Medicare Tax when wages are paid in excess of $200,000)||Federal Unemployment (FUTA)|
|Accident and health benefits||Exempt1,2, except for long-term care benefits provided through a flexible spending or similar arrangement.||Exempt, except for certain payments to S corporation employees who are 2% shareholders.||Exempt|
|Achievement awards||Exempt1 up to $1,600 for qualified plan awards ($400 for nonqualified awards).|
|Athletic facilities||Exempt if substantially all use during the calendar year is by employees, their spouses, and their dependent children, and the facility is operated by the employer on premises owned or leased by the employer.|
|De minimis (minimal) benefits||Exempt||Exempt||Exempt|
|Dependent care assistance||Exempt3 up to certain limits, $5,000 ($2,500 for married employee filing separate return).|
|Educational assistance||Exempt up to $5,250 of benefits each year. (See Educational Assistance , later in this section.)|
|Employee discounts||Exempt3 up to certain limits. (See Employee Discounts , later in this section.)|
|Employee stock options||See Employee Stock Options , later in this section.|
|Employer-provided cell phones||Exempt if provided primarily for noncompensatory business purposes.|
|Group-term life insurance coverage||Exempt||Exempt1,4, 7 up to cost of $50,000 of coverage. (Special rules apply to former employees.)||Exempt|
|Health savings accounts (HSAs)||Exempt for qualified individuals up to the HSA contribution limits. (See Health Savings Accounts , later in this section.)|
|Lodging on your business premises||Exempt1 if furnished on your business premises, for your convenience, and as a condition of employment.|
|Meals||Exempt1 if furnished on your business premises for your convenience.|
|Exempt if de minimis.|
|Moving expense reimbursements||Exempt1 if expenses would be deductible if the employee had paid them.|
|Retirement planning services||Exempt5||Exempt5||Exempt5|
|Transportation (commuting) benefits||Exempt1 up to certain limits if for rides in a commuter highway vehicle and/or transit passes ($255), qualified parking ($255), or qualified bicycle commuting reimbursement6 ($20). (See Transportation (Commuting) Benefits , later in this section.)|
|Exempt if de minimis.|
|Tuition reduction||Exempt3 if for undergraduate education (or graduate education if the employee performs teaching or research activities).|
|Working condition benefits||Exempt||Exempt||Exempt|
|1 Exemption doesn't apply to S corporation employees who are 2% shareholders.|
|2 Exemption doesn't apply to certain highly compensated employees under a self-insured plan that favors those employees.|
|3 Exemption doesn't apply to certain highly compensated employees under a program that favors those employees.|
|4 Exemption doesn't apply to certain key employees under a plan that favors those employees.|
|5 Exemption doesn't apply to services for tax preparation, accounting, legal, or brokerage services.|
|6 If the employee receives a qualified bicycle commuting reimbursement in a qualified bicycle commuting month, the employee can't receive commuter highway vehicle, transit pass, or qualified parking benefits in that same month.|
|7 You must include in your employee's wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Also, show it in box 12 with code "C." The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax.|
This exclusion applies to contributions you make 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 (discussed in Pub. 969).
This exclusion also applies to payments you directly or indirectly make to an employee under an accident or health plan for employees that are either of the following.
Payments or reimbursements of medical expenses.
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.
This exclusion applies to the value of any tangible personal property you give to an employee as an award for either length of service or safety achievement. The exclusion doesn't apply to awards of cash, cash equivalents, gift certificates, or other intangible property such as vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, and other securities. The award must meet the requirements for employee achievement awards discussed in chapter 2 of Pub. 535.
An adoption assistance program is a separate written plan of an employer that meets all of the following requirements.
It benefits employees who qualify under rules set up by you, which don't favor highly compensated employees or their dependents. To determine whether your plan meets this test, don't consider employees excluded from your plan who are covered by a collective bargaining agreement, if there is evidence that adoption assistance was a subject of good-faith bargaining.
It doesn't pay more than 5% of its payments during the year for shareholders or owners (or their spouses or dependents). A shareholder or owner is someone who owns (on any day of the year) more than 5% of the stock or of the capital or profits interest of your business.
You give reasonable notice of the plan to eligible employees.
Employees provide reasonable substantiation that payments or reimbursements are for qualifying expenses.
For this exclusion, a highly compensated employee for 2017 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 $120,000 in pay for the preceding year.
You can choose to ignore test (2) if the employee wasn't also in the top 20% of employees when ranked by pay for the preceding year.
You must exclude all payments or reimbursements you make under an adoption assistance program for an employee's qualified adoption expenses from the employee's wages subject to federal income tax withholding. However, you can't exclude these payments from wages subject to social security, Medicare, and FUTA taxes. For more information, see the Instructions for Form 8839.
You must report all qualifying adoption expenses you paid or reimbursed under your adoption assistance program for each employee for the year in box 12 of the employee's Form W-2. Use code "T" to identify this amount.
You can exclude the value of an employee's use of an on-premises gym or other athletic facility you operate from an employee's wages if substantially all use of the facility during the calendar year is by your employees, their spouses, and their dependent children. For this purpose, an employee's dependent child is a child or stepchild who is the employee's dependent or who, if both parents are deceased, hasn't attained the age of 25.
You can exclude the value of a de minimis benefit you provide to an employee from the employee's wages. A de minimis benefit is any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable. Cash and cash equivalent fringe benefits (for example, gift certificates, gift cards, and the use of a charge card, or credit card), no matter how little, are never excludable as a de minimis benefit. However, meal money and local transportation fare, if provided on an occasional basis and because of overtime work, may be excluded as discussed later.
Examples of de minimis benefits include the following.
Personal use of an employer-provided cell phone provided primarily for noncompensatory business purposes. See Employer-Provided Cell Phones , later in this section, for details.
Holiday or birthday gifts, other than cash, with a low fair market value. Also, flowers or fruit or similar items provided to employees under special circumstances (for example, on account of illness, a family crisis, or outstanding performance).
Certain meals. See Meals , later in this section, for details.
Certain transportation fare. See Transportation (Commuting) Benefits , later in this section, for details.
Some examples of benefits that are not excludable as de minimis fringe benefits are season tickets to sporting or theatrical events; the commuting use of an employer-provided automobile or other vehicle more than one day a month; membership in a private country club or athletic facility, regardless of the frequency with which the employee uses the facility; and use of employer-owned or leased facilities (such as an apartment, hunting lodge, boat, etc.) for a weekend. If a benefit provided to an employee doesn't qualify as de minimis (for example, the frequency exceeds a limit described earlier), then generally the entire benefit must be included in income.
This exclusion applies to household and dependent care services you directly or indirectly pay for or provide to an employee under a written dependent care assistance program that covers only your 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 more information, see Tests To Claim the Credit in Pub. 503.
This exclusion applies to educational assistance you provide to employees under an educational assistance program. The exclusion also applies to graduate level courses.
Educational assistance means amounts you pay or incur for your employees' education expenses. These expenses generally include the cost of books, equipment, fees, supplies, and tuition. However, these expenses don't include the cost of a course or other education involving sports, games, or hobbies, unless the education:
Has a reasonable relationship to your business, or
Is required as part of a degree program.
Education expenses don't include the cost of tools or supplies (other than textbooks) your employee is allowed to keep at the end of the course. Nor do they include the cost of lodging, meals, or transportation. Your employee must be able to provide substantiation to you that the educational assistance provided was used for qualifying education expenses.
This exclusion applies to a price reduction you give your employee on property or services you offer to customers in the ordinary course of the line of business in which the employee performs substantial services. However, it doesn't apply to discounts on real property or discounts on personal property of a kind commonly held for investment (such as stocks or bonds).
Employee discounts also don't include discounts on a line of business of the employer for which the employee doesn't provide substantial services, or discounts on property or services of a kind that aren't offered for sale to customers. Therefore, discounts on items sold in an employee store that aren't sold to customers, aren't excluded from employee income. Also, employee discounts provided by another employer through a reciprocal agreement aren't excluded.
There are three kinds of stock options—incentive stock options, employee stock purchase plan options, and nonstatutory (nonqualified) stock options.
Wages for social security, Medicare, and FUTA taxes don't include remuneration resulting from the exercise of an incentive stock option or an employee stock purchase plan option, or from any disposition of stock acquired by exercising such an option.
Additionally, federal income tax withholding isn't required on the income resulting from a disqualifying disposition of stock acquired by the exercise of an incentive stock option or an employee stock purchase plan option, or on income equal to the discount portion of stock acquired by the exercise, after October 22, 2004, of an employee stock purchase plan option resulting from any qualifying disposition of the stock. The employer must report as income in box 1 of Form W-2 (a) the discount portion of stock acquired by the exercise of an employee stock purchase plan option upon a qualifying disposition of the stock, and (b) the spread (between the exercise price and the fair market value of the stock at the time of exercise) upon a disqualifying disposition of stock acquired by the exercise of an incentive stock option or an employee stock purchase plan option.
An employer must report the excess of the fair market value of stock received upon exercise of a nonstatutory stock option over the amount paid for the stock option on Form W-2 in boxes 1, 3 (up to the social security wage base), 5, and in box 12 using the code "V." See Regulations section 1.83-7.
An employee who transfers his or her interest in nonstatutory stock options to the employee's former spouse incident to a divorce isn't required to include an amount in gross income upon the transfer. The former spouse, rather than the employee, is required to include an amount in gross income when the former spouse exercises the stock options. See Revenue Ruling 2002-22 and Revenue Ruling 2004-60 for details. You can find Revenue Ruling 2002-22 on page 849 of Internal Revenue Bulletin 2002-19 at IRS.gov/pub/irs-irbs/irb02-19.pdf. Revenue Ruling 2004-60, 2004-24 I.R.B. 1051, is available at IRS.gov/irb/2004-24_IRB/ar13.html.
For more information about employee stock options, see sections 421, 422, and 423 of the Internal Revenue Code and their related regulations.
The value of the business use of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a working condition fringe benefit. Personal use of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a de minimis fringe benefit. For the rules relating to these types of benefits, see De Minimis (Minimal) Benefits , earlier in this section, and Working Condition Benefits , later in this section.
This exclusion applies to life insurance coverage that meets all the following conditions.
It provides a general death benefit that isn't included in income.
You provide it to a group of employees. See The 10-employee rule , later.
It provides an amount of insurance to each employee based on a formula that prevents individual selection. This formula must use factors such as the employee's age, years of service, pay, or position.
You provide it under a policy you directly or indirectly carry. Even if you don't pay any of the policy's cost, you’re considered to carry it if you arrange for payment of its cost by your employees and charge at least one employee less than, and at least one other employee more than, the cost of his or her insurance. Determine the cost of the insurance, for this purpose, as explained under Coverage over the limit , later.
Group-term life insurance doesn't include the following insurance.
Insurance that doesn't provide general death benefits, such as travel insurance or a policy providing only accidental death benefits.
Life insurance on the life of your employee's spouse or dependent. However, you may be able to exclude the cost of this insurance from the employee's wages as a de minimis benefit. See De Minimis (Minimal) Benefits , earlier in this section.
Insurance provided under a policy that provides a permanent benefit (an economic value that extends beyond 1 policy year, such as paid-up or cash-surrender value), unless certain requirements are met. See Regulations section 1.79-1 for details.
Table 2-2. Cost Per $1,000 of Protection For 1 Month
|Under 25||$ 0.05|
|25 through 29||0.06|
|30 through 34||0.08|
|35 through 39||0.09|
|40 through 44||0.10|
|45 through 49||0.15|
|50 through 54||0.23|
|55 through 59||0.43|
|60 through 64||0.66|
|65 through 69||1.27|
|70 and older||2.06|
You figure the total cost to include in the employee's wages by multiplying the monthly cost by the number of full months' coverage at that cost.
Tom's employer provides him with group-term life insurance coverage of $200,000. Tom is 45 years old, isn't a key employee, and pays $100 per year toward the cost of the insurance. Tom's employer must include $170 in his wages. The $200,000 of insurance coverage is reduced by $50,000. The yearly cost of $150,000 of coverage is $270 ($0.15 x 150 x 12), and is reduced by the $100 Tom pays for the insurance. The employer includes $170 in boxes 1, 3, and 5 of Tom's Form W-2. The employer also enters $170 in box 12 with code "C."
A Health Savings Account (HSA) is an account owned by a qualified individual who is generally your employee or former employee. Any contributions that you make to an HSA become the employee's property and can't be withdrawn by you. Contributions to the account are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. The medical expenses must not be reimbursable by insurance or other sources and their payment from HSA funds (distribution) won't give rise to a medical expense deduction on the individual's federal income tax return.
You can exclude the value of lodging you furnish to an employee from the employee's wages if it meets the following tests.
It is furnished on your business premises.
It is furnished for your convenience.
The employee must accept it as a condition of employment.
Different tests may apply to lodging furnished by educational institutions. See section 119(d) of the Internal Revenue Code for details.
If you allow your employee to choose to receive additional pay instead of lodging, then the lodging, if chosen, isn’t excluded. The exclusion also doesn't apply to cash allowances for lodging.
Example of qualifying lodging.
You employ Sam at a construction project at a remote job site in Alaska. Due to the inaccessibility of facilities for the employees who are working at the job site to obtain lodging and the prevailing weather conditions, you furnish lodging to your employees at the construction site in order to carry on the construction project. You require that your employees accept the lodging as a condition of their employment. You may exclude the lodging that you provide from Sam's wages. Additionally, since sufficient eating facilities aren’t available near your place of employment, you may also exclude meals you provide to Sam from his wages, as discussed under Meals on Your Business Premises , later in this section.
Example of nonqualifying lodging.
A hospital gives Joan, an employee of the hospital, the choice of living at the hospital free of charge or living elsewhere and receiving a cash allowance in addition to her regular salary. If Joan chooses to live at the hospital, the hospital can't exclude the value of the lodging from her wages because she isn't required to live at the hospital to properly perform the duties of her employment.
This section discusses the exclusion rules that apply to de minimis meals and meals on your business premises.
You can exclude any occasional meal you provide to an employee if it has so little value (taking into account how frequently you provide meals to your employees) that accounting for it would be unreasonable or administratively impracticable. The exclusion applies, for example, to the following items.
Coffee, doughnuts, or soft drinks.
Occasional meals or meal money provided to enable an employee to work overtime. However, the exclusion doesn't apply to meal money figured on the basis of hours worked, or meals or meal money provided on a regular or routine basis.
Occasional parties or picnics for employees and their guests.
If food or beverages you furnish to employees qualify as a de minimis benefit, you can deduct their full cost. The 50% limit on deductions for the cost of meals doesn't apply. The deduction limit on meals is discussed in chapter 2 of Pub. 535.
You can exclude the value of meals you furnish to an employee from the employee's wages if they meet the following tests.
They are furnished on your business premises.
They are furnished for your convenience.
If you allow your employee to choose to receive additional pay instead of meals, then the meals, if chosen, aren’t excluded. The exclusion also doesn't apply to cash allowances for meals.
This exclusion applies to any amount you directly or indirectly give to an employee (including services furnished in kind) as payment for, or reimbursement of, moving expenses related to starting work at a new principal place of work. You must make the reimbursement under rules similar to those described in chapter 11 of Pub. 535 for reimbursement of expenses for travel, meals, and entertainment under accountable plans.
The exclusion applies only to reimbursement of moving expenses that the employee could deduct if he or she had paid or incurred them without reimbursement. However, it doesn't apply if the employee actually deducted the expenses in a previous year.
Deductible moving expenses don't include any expenses for meals and must meet both the distance test and the time test. The distance test is met if the new job location is at least 50 miles farther from the employee's old home than the old job location was. The time test is met if the employee works at least 39 weeks during the first 12 months after arriving in the general area of the new job location.
For more information on deductible moving expenses, see Pub. 521.
This exclusion applies to a service you provide to an employee if it doesn't cause you to incur any substantial additional costs. The service must be offered to customers in the ordinary course of the line of business in which the employee performs substantial services.
No-additional-cost services are excess capacity services, such as airline, bus, or train tickets; hotel rooms; or telephone services provided free, at a reduced price, or through a cash rebate to employees working in those lines of business. Services that aren't eligible for treatment as no-additional-cost services are non-excess capacity services, such as the facilitation by a stock brokerage firm of the purchase of stock by employees. These services may however be eligible for a qualified employee discount of up to 20% of the value of the service provided as discussed in Employee Discounts , earlier.
You may exclude from an employee's wages the value of any retirement planning advice or information you provide to your employee or his or her spouse if you maintain a qualified retirement plan. A qualified retirement plan includes a plan, contract, pension, or account described in section 219(g)(5) of the Internal Revenue Code. In addition to employer plan advice and information, the services provided may include general advice and information on retirement. However, the exclusion doesn't apply to services for tax preparation, accounting, legal, or brokerage services. You can't exclude from the wages of a highly compensated employee retirement planning services that aren't available on the same terms to each member of a group of employees normally provided education and information about the employer's qualified retirement plan.
This section discusses exclusion rules that apply to benefits you provide to your employees for their personal transportation, such as commuting to and from work. These rules apply to the following transportation benefits.
De minimis transportation benefits.
Qualified transportation benefits.
Special rules that apply to demonstrator cars and qualified nonpersonal use vehicles are discussed under Working Condition Benefits , later in this section.
You can exclude the value of any de minimis transportation benefit you provide to an employee from the employee's wages. A de minimis transportation benefit is any local transportation benefit you provide to an employee if it has so little value (taking into account how frequently you provide transportation to your employees) that accounting for it would be unreasonable or administratively impracticable. For example, it applies to occasional local transportation fare you give an employee because the employee is working overtime if the benefit is reasonable and isn't based on hours worked. Local transportation fare provided on a regular or routine basis doesn't qualify for this exclusion.
This exclusion applies to the following benefits.
A ride in a commuter highway vehicle between the employee's home and work place.
A transit pass.
Qualified bicycle commuting reimbursement.
You may provide an employee with any one or more of the first three benefits at the same time. However, the exclusion for qualified bicycle commuting reimbursement isn't available in any month the employee receives any of the other qualified transportation benefits.
Qualified transportation benefits can be provided directly by you or through a bona fide reimbursement arrangement. However, cash reimbursements for transit passes qualify only if a voucher or a similar item that the employee can exchange only for a transit pass isn't readily available for direct distribution by you to your employee. A voucher is readily available for direct distribution only if an employer can obtain it from a voucher provider that doesn't impose fare media charges or other restrictions that effectively prevent the employer from obtaining vouchers. See Regulations section 1.132-9(b)(Q&A 16–19) for more information.
Generally, you can exclude qualified transportation fringe benefits from an employee's wages even if you provide them in place of pay. However, qualified bicycle commuting reimbursements can't be excluded if the reimbursements are provided in place of pay. For information about providing qualified transportation fringe benefits under a compensation reduction agreement, see Regulations section 1.132-9(b)(Q&A 11–15).
A self-employed individual isn't an employee for qualified transportation benefit purposes.
An educational organization can exclude the value of a qualified tuition reduction it provides to an employee from the employee's wages.
A tuition reduction for undergraduate education generally qualifies for this exclusion if it is for the education of one of the following individuals.
A current employee.
A former employee who retired or left on disability.
A widow or widower of an individual who died while an employee.
A widow or widower of a former employee who retired or left on disability.
A dependent child or spouse of any individual listed in (1) through (4) above.
A tuition reduction for graduate education qualifies for this exclusion only if it is for the education of a graduate student who performs teaching or research activities for the educational organization.
For more information on this exclusion, see Qualified Tuition Reduction under Other Types of Educational Assistance in chapter 1 of Pub. 970.
This exclusion applies to property and services you provide to an employee so that the employee can perform his or her job. It applies to the extent the employee could deduct the cost of the property or services as a business expense or depreciation expense if he or she had paid for it. The employee must meet any substantiation requirements that apply to the deduction. Examples of working condition benefits include an employee's use of a company car for business, an employer-provided cell phone provided primarily for noncompensatory business purposes, and job-related education provided to an employee.
This exclusion also applies to a cash payment you provide for an employee's expenses for a specific or prearranged business activity for which a deduction is otherwise allowable to the employee. You must require the employee to verify that the payment is actually used for those expenses and to return any unused part of the payment.
For information on deductible employee business expenses, see Unreimbursed Employee Expenses in Pub. 529.
The exclusion doesn't apply to the following items.
A service or property provided under a flexible spending account in which you agree to provide the employee, over a time period, a certain level of unspecified noncash benefits with a predetermined cash value.
A physical examination program you provide, even if mandatory.
Any item to the extent the employee could deduct its cost as an expense for a trade or business other than your trade or business.
This section discusses the rules you must use to determine the value of a fringe benefit you provide to an employee. You must determine the value of any benefit you can't exclude under the rules in section 2 or for which the amount you can exclude is limited. See Including taxable benefits in pay in section 1.
In most cases, you must use the general valuation rule to value a fringe benefit. However, you may be able to use a special valuation rule to determine the value of certain benefits.
This section doesn't discuss the special valuation rule used to value meals provided at an employer-operated eating facility for employees. For that rule, see Regulations section 1.61-21(j). This section also doesn't discuss the special valuation rules used to value the use of aircraft. For those rules, see Regulations sections 1.61-21(g) and (h). The aircraft fringe benefit valuation formulas are published in the Internal Revenue Bulletin as Revenue Rulings twice during the year. The formula applicable for the first half of the year is usually available at the end of March. The formula applicable for the second half of the year is usually available at the end of September.
You must use the general valuation rule to determine the value of most fringe benefits. Under this rule, the value of a fringe benefit is its fair market value.
Under this rule, you determine the value of a vehicle you provide to an employee for personal use by multiplying the standard mileage rate by the total miles the employee drives the vehicle for personal purposes. Personal use is any use of the vehicle other than use in your trade or business. This amount must be included in the employee's wages or reimbursed by the employee. For 2017, the standard mileage rate is 53.5 cents per mile.
You can use the cents-per-mile rule if either of the following requirements is met.
You reasonably expect the vehicle to be regularly used in your trade or business throughout the calendar year (or for a shorter period during which you own or lease it).
The vehicle meets the mileage test.
Maximum automobile value. You can't use the cents-per-mile rule for an automobile (any four-wheeled vehicle, such as a car, pickup truck, or van) if its value when you first make it available to any employee for personal use is more than an amount determined by the IRS as the maximum automobile value for the year. For example, you can't use the cents-per-mile rule for an automobile that you first made available to an employee in 2016 if its value at that time exceeded $15,900 for a passenger automobile or $17,700 for a truck or van. The maximum automobile value for 2017 will be published in a notice in the Internal Revenue Bulletin early in 2017. If you and the employee own or lease the automobile together, see Regulations sections 1.61-21(e)(1)(iii)(B) and (C).
Under this rule, you determine the value of a vehicle you provide to an employee for commuting use by multiplying each one-way commute (that is, from home to work or from work to home) by $1.50. If more than one employee commutes in the vehicle, this value applies to each employee. This amount must be included in the employee's wages or reimbursed by the employee.
You can use the commuting rule if all the following requirements are met.
You provide the vehicle to an employee for use in your trade or business and, for bona fide noncompensatory business reasons, you require the employee to commute in the vehicle. You will be treated as if you had met this requirement if the vehicle is generally used each workday to carry at least three employees to and from work in an employer-sponsored commuting pool.
You establish a written policy under which you don't allow the employee to use the vehicle for personal purposes other than for commuting or de minimis personal use (such as a stop for a personal errand on the way between a business delivery and the employee's home). Personal use of a vehicle is all use that isn't for your trade or business.
The employee doesn't use the vehicle for personal purposes other than commuting and de minimis personal use.
If this vehicle is an automobile (any four-wheeled vehicle, such as a car, pickup truck, or van), the employee who uses it for commuting isn't a control employee. See Control employee , later.
Under this rule, you determine the value of an automobile you provide to an employee by using its annual lease value. For an automobile provided only part of the year, use either its prorated annual lease value or its daily lease value.
If the automobile is used by the employee in your business, you generally reduce the lease value by the amount that is excluded from the employee's wages as a working condition benefit. In order to do this, the employee must account to the employer for the business use. This is done by substantiating the usage (mileage, for example), the time and place of the travel, and the business purpose of the travel. Written records made at the time of each business use are the best evidence. Any use of a company-provided vehicle that isn't substantiated as business use is included in income. The working condition benefit is the amount that would be an allowable business expense deduction for the employee if the employee paid for the use of the vehicle. However, you can choose to include the entire lease value in the employee's wages. See Vehicle allocation rules under Working Condition Benefit in section 2.
Generally, you figure the annual lease value of an automobile as follows.
Determine the FMV of the automobile on the first date it is available to any employee for personal use.
Using Table 3-1, read down column (1) until you come to the dollar range within which the FMV of the automobile falls. Then read across to column (2) to find the annual lease value.
Multiply the annual lease value by the percentage of personal miles out of total miles driven by the employee.
Table 3-1. Annual Lease Value Table
|(1) Automobile FMV||(2) Annual Lease|
|$ 0 to 999||$ 600|
|1,000 to 1,999||850|
|2,000 to 2,999||1,100|
|3,000 to 3,999||1,350|
|4,000 to 4,999||1,600|
|5,000 to 5,999||1,850|
|6,000 to 6,999||2,100|
|7,000 to 7,999||2,350|
|8,000 to 8,999||2,600|
|9,000 to 9,999||2,850|
|10,000 to 10,999||3,100|
|11,000 to 11,999||3,350|
|12,000 to 12,999||3,600|
|13,000 to 13,999||3,850|
|14,000 to 14,999||4,100|
|15,000 to 15,999||4,350|
|16,000 to 16,999||4,600|
|17,000 to 17,999||4,850|
|18,000 to 18,999||5,100|
|19,000 to 19,999||5,350|
|20,000 to 20,999||5,600|
|21,000 to 21,999||5,850|
|22,000 to 22,999||6,100|
|23,000 to 23,999||6,350|
|24,000 to 24,999||6,600|
|25,000 to 25,999||6,850|
|26,000 to 27,999||7,250|
|28,000 to 29,999||7,750|
|30,000 to 31,999||8,250|
|32,000 to 33,999||8,750|
|34,000 to 35,999||9,250|
|36,000 to 37,999||9,750|
|38,000 to 39,999||10,250|
|40,000 to 41,999||10,750|
|42,000 to 43,999||11,250|
|44,000 to 45,999||11,750|
|46,000 to 47,999||12,250|
|48,000 to 49,999||12,750|
|50,000 to 51,999||13,250|
|52,000 to 53,999||13,750|
|54,000 to 55,999||14,250|
|56,000 to 57,999||14,750|
|58,000 to 59,999||15,250|
For automobiles with an FMV of more than $59,999, the annual lease value equals (0.25 × the FMV of the automobile) + $500.
If you provide an automobile to an employee for a continuous period of 30 or more days but less than an entire calendar year, you can prorate the annual lease value. Figure the prorated annual lease value by multiplying the annual lease value by a fraction, using the number of days of availability as the numerator and 365 as the denominator.
If you provide an automobile continuously for at least 30 days, but the period covers 2 calendar years (or 2 special accounting periods if you’re using the special accounting rule for fringe benefits discussed in section 4), you can use the prorated annual lease value or the daily lease value.
If you have 20 or more automobiles, see Regulations section 1.61-21(d)(6).
If an automobile is unavailable to the employee because of his or her personal reasons (for example, if the employee is on vacation), you can't take into account the periods of unavailability when you use a prorated annual lease value.
You can't use a prorated annual lease value if the reduction of federal tax is the main reason the automobile is unavailable.
If you provide an automobile to an employee for a continuous period of less than 30 days, use the daily lease value to figure its value. Figure the daily lease value by multiplying the annual lease value by a fraction, using four times the number of days of availability as the numerator and 365 as the denominator.
However, you can apply a prorated annual lease value for a period of continuous availability of less than 30 days by treating the automobile as if it had been available for 30 days. Use a prorated annual lease value if it would result in a lower valuation than applying the daily lease value to the shorter period of availability.
Under this rule, the value of commuting transportation you provide to a qualified employee solely because of unsafe conditions is $1.50 for a one-way commute (that is, from home to work or from work to home). This amount must be included in the employee's wages or reimbursed by the employee.
You can use the unsafe conditions commuting rule for qualified employees if all of the following requirements are met.
The employee would ordinarily walk or use public transportation for commuting.
You have a written policy under which you don't provide the transportation for personal purposes other than commuting because of unsafe conditions.
The employee doesn't use the transportation for personal purposes other than commuting because of unsafe conditions.
These requirements must be met on a trip-by-trip basis.
Use the following guidelines for withholding, depositing, and reporting taxable noncash fringe benefits. For additional information on how to withhold on fringe benefits, see section 5 in Pub. 15.
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- Accident benefits, Accident and Health Benefits
- Achievement awards, Achievement Awards
- Additional Medicare Tax, Additional Medicare Tax withholding.
- Adoption assistance, Adoption Assistance
- Annual lease value, Annual Lease Value
- Assistance (see Tax help)
- Athletic facilities, Athletic Facilities
- Automobile (see Vehicles)
- Awards, achievement, Achievement Awards
- Cafeteria plans, Cafeteria Plans
- Cents-per-mile rule, What's New, Cents-Per-Mile Rule
- COBRA premiums, COBRA premiums.
- Comments on publication, Comments and suggestions.
- Commuter highway vehicle, Commuter highway vehicle.
- Commuting rule, Commuting Rule
- Copying machine use, De Minimis (Minimal) Benefits
- Daily lease value, Daily Lease Value
- De minimis (minimal) benefits
- Demonstrator cars, Demonstrator cars.
- Dependent care assistance, Dependent Care Assistance
- Deposit rules, 4. Rules for Withholding, Depositing, and Reporting
- Discounts for employees, Employee Discounts
- Educational assistance, Educational Assistance
- Employee benefit programs
- Employee discounts, Employee Discounts
- Employee stock options, Employee Stock Options
- Employer-operated eating facility, Employer-operated eating facility for employees.
- Employer-provided cell phones, Employer-Provided Cell Phones
- Exclusion rules, 2. Fringe Benefit Exclusion Rules
- Lease value rule, Lease Value Rule
- Length of service awards, Achievement Awards
- Life insurance
- Lodging, Lodging on Your Business Premises
- Long-term care insurance, Exception for certain long-term care benefits.
- Parking, qualified, Qualified parking.
- Parties, De Minimis (Minimal) Benefits
- Performance of services, Performance of services.
- Pickup trucks, Pickup trucks.
- Picnics, De Minimis (Minimal) Benefits
- Product testing , Product testing.
- Prorated annual lease value, Prorated Annual Lease Value
- Provider defined, Provider of benefit.
- Publications (see Tax help)
- Qualified transportation benefits, Qualified Transportation Benefits
- Recipient defined, Recipient of benefit.
- Reimbursements, moving expense, Moving Expense Reimbursements
- Reporting rules, 4. Rules for Withholding, Depositing, and Reporting
- Retirement planning services, Retirement Planning Services
- Safety achievement awards, Achievement Awards
- Self insurance (medical reimbursement plans), Accident and Health Benefits
- Services, no-additional-cost, No-Additional-Cost Services
- Simple Cafeteria Plans, Simple Cafeteria Plans
- Special accounting rule, Special accounting rule.
- Stock options, employee, Employee Stock Options
- Suggestions for publication, Comments and suggestions.
- Tax help, How To Get Tax Help
- Taxable benefits, Are Fringe Benefits Taxable?
- Tickets for theater or sporting events, De Minimis (Minimal) Benefits
- Transit pass, Transit pass.
- Transportation benefits
- Tuition reduction, Tuition Reduction
- Unsafe conditions commuting rule, Unsafe Conditions Commuting Rule
- Withholding rules, 4. Rules for Withholding, Depositing, and Reporting
- Working condition benefits, Working Condition Benefits