Introduction The US Tax Code excludes nine types of fringe benefit expense from taxable income. Business Travel Expenses that are "lavish or extravagant", says the IRS, are not tax deductible. Qualified Tuition Reduction A qualified tuition reduction is tax-free. Housing Most types of job-related housing cost are deductible. Pensions Tax-privileged retirement plans: ERISA, ESOPS, IRAs etc. Company Cars Personal use of a company car is usually a taxable non-cash fringe benefit. Medical Expenses Benefits received from health-care plans are generally taxable; the current regime will no doubt be substantially changed by President Obama's health-care law, when finally passed.

NOTE: The tax regime applying to all fringe benefits is highly complex, and professional advice should be taken before planning any scheme designed to minimise taxation. These notes are intended simply to give a general overview and should not be relied upon as a basis for action in any particular case.

Company Cars

If an employer provides a car (or other highway motor vehicle) to an employee, his or her personal use of the car is usually a taxable non-cash fringe benefit. The employer must determine the actual value of this fringe benefit to include in the employee's income.

Certain employer-provided transportation can be excluded from gross income. If the employer provides a qualified transportation fringe benefit, it can be excluded from the employee's income, up to certain limits. A qualified transportation fringe benefit is:

• Transportation in a commuter highway vehicle (such as a van) between the home and work place;
  
• A transit pass, or
  
• Qualified parking.

Cash reimbursement by an employer for these expenses under a bona fide reimbursement arrangement is also excludable. However, cash reimbursement for a transit pass is excludable only if a voucher or similar item that can be exchanged only for a transit pass is not readily available for direct distribution to the employee.

The exclusion for combined commuter highway vehicle transportation and transit pass fringe benefits cannot be more than a total of $120 (2009) a month, regardless of the total value of both benefits. The exclusion for the qualified parking fringe benefit cannot be more than $230 (2009) a month, regardless of its value. If the benefits have a value that is more than these limits, the excess must be included in the employee's income.

Commuter highway vehicle - this is a highway vehicle that seats at least six adults (not including the driver). At least 80% of the vehicle's mileage must reasonably be expected to be:

• For transporting employees between their homes and work place, and
  
• On trips during which employees occupy at least half of the vehicle's adult seating capacity (not including the driver).

Transit pass - this is any pass, token, farecard, voucher, or similar item entitling a person to ride mass transit (whether public or private) free or at a reduced rate or to ride in a commuter highway vehicle operated by a person in the business of transporting persons for compensation.

Qualified parking - this is parking provided to an employee at or near the employer's place of business. It also includes parking provided on or near a location from which the employee commutes to work in a commuter highway vehicle or carpool. It does not include parking at or near the employee's home.

BACK TO TOP

Introduction The US Tax Code excludes nine types of fringe benefit expense from taxable income.

Business Travel Expenses that are "lavish or extravagant", says the IRS, are not tax deductible.

Qualified Tuition Reduction A qualified tuition reduction is tax-free.