Tax Tip of the Week: What employer payments to an employee are not taxable to them?

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Loopholes This is a frequent question I receive from both employers and employees. The debt fight in Washington has highlighted what the President calls, “tax loopholes that should be closed.” A “loophole” is a legal deduction that Washington has written in to the code to encourage some behavior that they feel is worthwhile.

Contrary to public opinion, “Loopholes” are not just for millionaires and billionaires. There are many “loopholes” that employers can offer to their employees that are normally deductible to the company and not considered taxable wages for the employee. These include:

  • Noncash gifts of a nominal value, such as a holiday turkey or movie tickets.
  • Expense reimbursements under an accountable plan.
  • Reimbursed and employer paid moving expenses.
  • Contributions to a qualified retirement plan.
  • Certain employee length-of-service and safety achievement awards. This is limited to $1,600 in a qualified plan or $400 in a non-qualified plan.
  • Value of health and accident insurance premiums paid by the employer. (This is one benefit that the Obama administration and congressional democrats want taxed. Keep an eye on the “Super-Committees” deficit reduction plan this fall to see if this “Loophole” survives.)
  • Meals furnished on the employer’s premises for its convenience.
  • Lodging on the employers premises required for the performance of their job. (A good example is a fireman.)
  • Qualified adoption expenses.
  • Qualified transportation fringe benefits.
  • Up to $5,250 of qualified educational expenses.
  • Qualified retirement planning services.
  • Value of employer-provided athletic facility that is on premises.
  • Qualified dependent care benefits.
  • Employee discounts on property or services normally offered to customers.

Every employer should talk to their tax preparer to see how they can take advantage of these legal “Loopholes”. It will help employee morale and allow you to recruit better employees.

If you are an employee, talk to your employer to be sure you are taking advantage of everything they are currently offering. You might want to give them a copy of this blog article so they can speak to their CPA about adding “Loopholes” that they currently aren’t taking advantage of.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.