Fringe Benefits

1) No-additional-cost service.
2) Qualified employee discounts.
3) Working condition fringe.
4) A de minimis (minimal) fringe.
5) Certain athletic facilities (located on the employer’s premises).
6) Qualified transportation fringe.
7) Qualified moving expense reimbursement.

An employer may exclude the value of a no-additional-cost service from an employee’s gross income if:

1) Service is offered for sale to customers in the ordinary course of the line of business in which the employee is performing services, and
2) Employer does not incur any substantial additional cost in providing the service to an employee.

Examples of No-Additional-Cost Services: Excess capacity services such as (1) Hotel accommodations; (2) Telephone services; (3) Transportation by aircraft, train, bus, subway, and cruise line.

Employees may exclude from gross income certain discounts on the purchase of their employer’s goods or services if:

1) Discount received is not greater than the gross profit percentage of the price at which the property is offered for sale to the public.
2) Discount received on services is not greater than 20% of the price at which the services are offered to the public.

To qualify for the tax-free fringe benefit, the goods or services must be offered for sale to all customers in the ordinary course of the employer’s business. Furthermore, the fringe benefit discounts must be made available to all employees, not just to officers, owners, or highly compensated employees. However, the tax-free fringe benefit discount rule does not extend to real property of any kind or personal property held for investment.

Fringe benefit discounts may also be extended to retired and disabled former employees, to surviving spouses, and to dependent children of employees.

An employer-provided service or property is tax free to an employee if it would have been deductible as a business expense by the employee if paid out of his/her own pocket.

These minimal fringe benefits are so small that it would be unreasonable or administratively impractical for an employer to account for the fringe benefits.

Fringe Benefits - Meal Furnished for the Convenience of the Employer: Meals provided under the "convenience of the employer" rules are a de minimis fringe benefit and are excludable by the employee and fully deductible by the employer. 

The value of athletic facilities provided by an employer to its employees is excluded from an employee’s gross income. The athletic facility must be located on premises owned or leased by the employer, and substantially all of the use of the facilities must be by employees, their spouses, and dependent children. The facility can be a tennis court, gym, pool, or a golf course. This fringe benefit exclusion does not apply if the facility is made accessible to the general public. The fringe benefit exclusion does not apply to any residential use facility. 

• Public Transportation: Employers can provide up to $65 (1999 tax year) per month to help employees defray costs of commuting.

– Give $65 tokens or transit passes a month to an employee.
– Sell tokens or transit passes to employees at a $65 discount.
– Reimburse employees $65 per month for public commuting expenses.

• Employer-Provided Transportation: An employer may provide a commuter highway vehicle (van pool) for transportation of employees to and from work.

– Vehicle must seat at least 7 adults, including the driver, 
– 80% of van use must be for transporting employees to and from work, and
– At least half of the seating capacity must be used by employees (excluding the driver).

Under the commuting valuation rule, each one-way trip is valued at a flat rate of $1.50 ($3.00 per round trip). Up to $65 per month is excludable from income by the employee. Workers do not have to include either type of assistance in gross income, as long as the $65 limit is not exceeded. Amounts received in excess of $65 are included in income and subject to federal income tax, federal withholding, FICA, and FUTA. 

• Parking: In addition to transportation benefits, an employer may provide an additional $175 per month (1999 tax year) for qualified parking expenses. This includes reimbursed costs incurred at "park and ride" lots. For tax years beginning after 1997, employers can offer a choice between qualified parking as a tax-free fringe benefit, or a cash equivalent fringe benefit which is taxable as compensation. Under prior law, the exclusion for employer-provided parking was not allowed if the employer offered a fringe benefit cash option to employees.

An employee may exclude from income any qualified moving expense reimbursement. Amounts received (directly or indirectly) from the employer as payment for expenses that would be deductible moving expenses if paid by the employee:

• Moving household goods and personal effects from the former home to the new home, and
• Travel (including lodging) from the former home to the new home.