In addition to cash salary or wages, employers can provide employees with a wide array of benefits.  These benefits can take many forms, including: (1) advances or reimbursements for employee expenses; (2) the provision of goods and services for free or at a discount; (3) opportunities to receive employer stock at a discount; and (4) intangible benefits (e.g., a prime office location).   Specific examples include reimbursements or payments for moving expenses, educational expenses, medical expenses, food and lodging as well as receipt of prizes, awards and other special payments.  Commonly employer-provided services and facilities include the use of an employer cafeteria, personal use of company cars or aircraft, taxi fare for late evening work and low interest loans.   

 While employer-provided benefits or payments generally are well received and appreciated by employees, there may be attendant tax consequences to both the employee and the employer that must be addressed.  Many times employees are shocked that a benefit is actually subject to taxation.  Of critical concern is whether an employer-provided benefit or payment constitutes taxable income to the employee and is subject to federal income tax withholding, Social Security and Medicare (both, FICA), and FUTA taxation.  In addition, while some benefits may not result in taxable income, their receipt may require reporting to the IRS by the employer.   

 Can you identify the tax consequences of the following type of benefits (i.e., are such benefits subject to income tax withholding or FICA or FUTA taxation?): 

1.   Matching contributions made by an employer under a 401(k) plan.    
   Answer: Employer matching contributions are not subject to federal income tax withholding or FICA or FUTA taxation.   
2.  Employee 401(k) elective deferrals. 
   Answer: Employee deferrals under a 401(k) plan are treated as employer contributions for income tax purposes and are exempt from income tax withholding.  However, FICA and FUTA taxes apply.   
3.  A holiday gift of a turkey or ham.  
   Answer:  Noncash gifts of nominal value are not considered wages and are not subject to employment taxes. 
4.  Personal use of a company car.  
   Answer: The value of an employee’s personal use of a company car is includible in gross income and subject to employment taxes unless it can be excluded as a de minimis benefit. 
5.  Reimbursements for moving expenses. 
   Answer: To the extent such expenses are considered qualified moving expenses (that is, they meet certain time and distance tests and reimbursements are made under an accountable plan), they are exempt from taxation – however, an employer must report these payments on the employee's W-2. 
6.  Parking reimbursements.  
   Answer: Employers can provide up to $245 per month in 2013 of parking reimbursements on an income- and employment-tax free basis.  However, the parking must be on or near the business premises or at the site where the employee boards public transportation or joins a carpool.  
7. Employee discount offered to the spouse of an employee.  
   Answer: As long as the discount does not exceed the employer's gross profit percentage on the sale of the merchandise in question, there are no tax consequences.  Spouses and children of employees can sometimes receive tax-free benefits from an employer.

 Bloomberg BNA has published a new, detailed chart in Worksheet 4 of 394 T.M., Employee Fringe Benefits, that describes the income tax withholding, FICA and FUTA taxation issues that arise in connection with the receipt of various types of employee benefits or employer payments.   The types of benefits and payments are listed in alphabetical order, and include a discussion of the applicable tax consequences and specific references to applicable law.  

Before your client gives their employee and their family the last remaining seats in the company jet, the client and the employee need to know the possible tax consequences. 

--Shaun Terrill 

Federal Tax Law Editor (Compensation Planning)