Your guide to tax-advantaged employee benefits

The conversation around employee benefits has never been livelier – considering the current job market scenario, employees are looking for benefits beyond healthcare. It’s not bad for the companies, either, as several options offer a tax break for them. Here’s a guide to tax-advantaged employee benefits!

Note: TIDY does not provide any specific tax advice; please consult a tax professional.

What are tax-advantaged employee benefits?

Tax-advantaged employee benefits are a specific kind of benefit that offers the possibility of saving money for both the employer and the employee, as neither of them needs to pay tax on it.

There are two main categories of tax-advantaged employee benefits:

1) Pre-tax benefits that are considered benefits: Healthcare is the largest example of this in the US.

2) Things the company can pay for as expenses that benefit an employee but are not "benefits" (for tax purposes). For all workers, this can include things like conferences, training, and employee lunches. For remote workers, it can include paying for home office equipment and home cleanings (to clean the work from the home office).

Because the company pays for the expense, and it is not taxable to the employee, the employee benefits more from a lower tax bill. Tax-advantaged employee benefits typically do not show up on the employee's paycheck in any way, while taxes for fringe benefits typically do.

Examples of tax-advantaged employee benefits

There’s something for everyone when it comes to non-taxable employee benefits, and many companies are aware of the most common one: healthcare. But there’s much more to consider when looking for a tax break:

Disability Insurance

Disability insurance is a good example of a tax-free benefit. As long as the company is paying the premium for which the employee is the beneficiary, that is not included in the employee’s income. If and when the employee receives any money from that policy, income tax will apply.

Group Term Life insurance

Companies can provide group term life insurance up to a certain amount and have it be tax-free.

Healthcare

Healthcare involves health insurance, vision, and dental, as well as paying for any and all uninsured health expenses. These are all, of course, tax-free.

Transportation

Transportation includes parking, public transportation passes, and even other services like vanpool transportation services. Those are tax-free for employees but have different deduction rules for companies.

Educational Assistance

Companies can pay up to a certain amount for course and program tuition, books, and different fees for employees. Those are tax-free, as long as they’re within the limit bracket.

Home Cleanings

Home cleanings are one of the best examples of a win-win in this scenario: it’s a tax break for companies and a service that improves employee productivity. There are different ways to look at it and categorize it in the employer’s tax return: it can be filed as a janitorial expense when given to hybrid or remote workers; or it can be a regular fringe benefit, which is taxable.

TIDY can help companies improve their employees’ productivity and morale while also getting a tax break. Book a call with us to learn more.

Note: TIDY does not provide any specific tax advice; please consult a tax professional.

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