This HR Corner is Brought to you by Carmody Torrance Sandak & Hennessey LLP. Written by: Attorney Timothy S. Klimpl

The subject of taxation of employee benefits made rare headlines recently when the Trump Organization and its chief financial officer, Allen Weisselberg, were indicted for tax crimes related to unreported fringe benefits. In support of the criminal charges in this case, the indictment describes concerted, years-long efforts to conceal these payments, while simultaneously tracking them as part of Weisselberg’s compensation. But in less nefarious-seeming instances, employer-provided benefits for housing, automobile use and tuition are actually pretty common, and sometimes non-taxable. So how do you know when such an item is taxable employee compensation and must be reflected in employee pay, and when it isn’t?         
What are fringe benefits?
According to the IRS, a fringe benefit is a form of pay for the performance of services. For example, an employee receives a fringe benefit when an employer allows the employee to use a business vehicle to commute to and from work.
Unless specifically excluded by the tax law, any fringe benefit provided by an employer to an employee is taxable, and must be included in the employee’s pay and reported on their annual Form W-2. Luckily, there are a number of such exclusions. The most common tax-free fringe benefits include group health insurance, and contributions to qualified retirement plans, Health Savings Accounts (HSAs) and flexible spending arrangements (FSAs). But what about other fringe benefits?

Rent/Lodging Expenses   
The Internal Revenue Code provides a very narrow set of circumstances in which an employer’s payment or reimbursement of an employee’s regular housing costs may be excluded from pay. To qualify, the lodging must be provided: (1) for the employer’s convenience; (2) on the employer’s business premises; and (3) as a condition of the employee’s employment.
In contrast to housing expenses that mostly benefit an employee personally, employer reimbursement of substantiated hotel and other travel expenses incurred by employees on bona fide business trips for employers are commonly excludible from an employee’s pay.

Auto Allowances/Use of Company Vehicles
An employee’s personal use of an employer-provided automobile any more than a minimal amount is generally considered taxable compensation. There are a variety of ways that employers and employees may account for the taxable portion of an employee’s use of an employer-provided automobile. One of the more common methods is the cents-per-mile rate set annually by the IRS.   

Parking and Transit
Another common, transportation benefit is parking and transit passes. For 2021, up to $270 per month may be excluded from employee income for both qualified parking and/or for combined commuter highway vehicle transportation and transit passes. 

The Code excludes up to $5,250 per calendar year in expenses paid by employers toward qualified educational assistance programs. In addition, payments toward qualified student loans are excludible from an employee’s pay through December 31, 2025.
In summary, employers need to be aware when they provide employees with fringe benefits to ensure their proper tax and accounting treatment. If an employer is unsure whether— and to what extent— a particular fringe benefit should be included in an employee’s pay, it is always prudent to seek advice from a competent professional. 
This information is for educational purposes only to provide general information and a general understanding of the law. It does not constitute legal advice and does not establish any attorney-client relationship.