What Possible Tax Free Benefits Can an Employer Give Employees?
Employers give their employees benefits to help attract skilled workers and keep them. There are many different benefits, and the number is growing as companies seek out new ways to improve employee lifestyles. Many traditional types of benefits, especially monetary benefits, are subject to taxes, limiting their usefulness. Some fringe benefits, however, are exempt from taxes that other benefits may incur and allow employers to be more flexible in benefit packages.
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Transit Benefits
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IRS rules allow companies to offer $120 per month to employees for commuting costs, specifically costs related to public transportation like the subway or bus. This benefit is tax deductible for the employer and is not included in the employee's income for tax purposes, making it a great incentive. It also applies to van-pool commuting costs. An additional $230 may be offered for commuter parking if it is necessary.
Athletic Facilities
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Athletic facilities are a tax-free benefit for employees, as long as the employer follows certain rules. Basically, the facilities must be a part of the business itself. Only employees or their families can use the facilities for the benefit to qualify, and the company must operate the facilities and either own or lease the space used.
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Retirement Planning Services
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While some benefits, like stock options, may come with a tax burden, companies can offer tax-free financial planning services as an addition to traditional options. Financial planning links an employee with an advisor, either hired or part of the business, who helps create an investment strategy in accordance with retirement goals and answers any questions. However, these services are not tax exempt if they include any tax preparation, accounting, legal or brokerage services.
HSAs
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HSA stands for health savings account, a popular type of benefit that is owned directly by the employee. These accounts allow employees to spend any money employers deposit there for medical purposes (within some parameters), making them highly discretionary and useful to many employees. These accounts are typically tax-free, as long as they stay within monetary contribution limits set by the IRS. Within this range, HSAs can be used for specific medical expenses such as contacts, medications, braces and other costs not reimbursable under the employee's health plan. These plans must be paired with a high deductible insurance plan to qualify.
Limitations
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Many fringe benefits, like HSAs, may be tax free but only if they fall under a specific amount per employee. As of 2011, educational benefits are exempt up to $5,250, dependent care assistance benefits have similar regulations and achievement awards are exempt up to $1,600 for qualified plans. Keep in mind that few of these tax exemptions apply to executives and other highly compensated employees of the company who may have self-insured plans specifically for their positions. Health benefits must generally be available to all employees without discrimination for any tax benefits to apply.
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