The tax code and Internal Revenue Service (IRS) regulations allow an employer to provide low-cost (or even no-cost) fringe benefits to its workforce. Many employers use these rules without even being aware of them, in part because few plan qualification or reporting requirements exist.
There may be some danger, however, in offering a particular fringe benefit without studying its statutory and regulatory basis, because—like any set of valuation and exclusion rules—the laws and regulations that apply to fringe benefits are full of detailed and often unpredictable limitations.
If such rules are not followed, not only may the benefit be includible in the employee’s income, but favorable valuation rules may not be applicable to the benefit. Furthermore, the special valuation rules generally have consistency requirements that make it imperative that employers monitor their application to certain benefits, such as company cars, provided to their entire workforce.
A fringe benefit provided by an employer to an employee is presumed to be income to the employee unless a provision of the tax code specifically excludes it from gross income. Section 132, for example, excludes working condition fringes, de minimis fringes, no-additional-cost services, and qualified employee discounts (see below).
In 2017, the Tax Cuts and Jobs Act (TCJA) curtailed the deductibility, and in some cases excludability, of certain fringe benefits. Transportation subsidies, moving expenses, and employee achievement awards are among the benefits affected. These changes generally apply for tax years 2018 through 2025.