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 be substantially changed by President Obama's health-care law.

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.

Qualified Tuition Reduction

A qualified tuition reduction is tax-free. It is a reduction in tuition that meets the following rules. Separate rules apply to education below the graduate level and education at the graduate level.

Education below the graduate level - a tuition reduction for education below the graduate level is tax free if the reduction is provided by an educational institution to its employees for their education or the education of any person treated as an employee. It must not represent a payment for services. Under this rule, only the following are treated as employees.

• A current employee,
  
• A former employee who retired or left on disability,
  
• A widow or widower of an individual who died while an employee,
  
• A widow or widower of a former employee who retired or left on disability, or
  
• A dependent child or spouse of any person listed above.

Child of deceased or divorced parents - If both parents have died, and if one of the parents qualified as an employee (see above), their child, if under age 25, can qualify to exclude a tuition reduction from income. A dependent child of divorced parents is treated as the dependent of both parents.

Officers, owners, and highly compensated employees - Qualified tuition reductions apply to officers, owners, or highly compensated employees if benefits are available to employees on a nondiscriminatory basis. This means that the tuition reduction benefits must be available on substantially the same basis to each member of a group of employees, defined under a reasonable classification set up by the employer. It must not discriminate in favour of owners, officers, or highly compensated employees.

Graduate education - A tuition reduction for graduate education is tax free if the reduction is provided by an educational institution to a graduate student who performs teaching or research activities for that institution. The qualified tuition reduction must be for education furnished by that institution, and not represent payment for services.

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.