Increase loyalty and decrease the tax burden of your employee with these non-taxable perks.
Employee Benefits Uncle Sam Won’t Tax
Tax Freedom Day 2012 arrived on April 17 this year. According to the Tax Foundation, that means every dollar that Americans earned from January 1 through April 17 went to pay federal, state and local income taxes. Everything earned from April 18 until December 31 is yours to keep. Having to work almost 4 months just to pay taxes each year is enough to make anyone depressed, especially considering that in 1900 Tax Freedom Day was on January 22. What a difference a century makes!
Employees who receive a fixed salary are especially sensitive to an increasing tax burden, as they work the same number of hours yet are able to buy less of what they need. This can lead to frustration and resentment among staff, which will yield a less-productive work environment; many people will blame the boss instead of fiscal policy for their inability to afford a new car this year.
So what can you do to help your employees keep more of what they make? Consider offering them employee benefits that are not considered taxable income by the government—at least not yet.
Let Them Travel
Let your employees keep for personal use frequent flyer miles they earn for business travel. According to IRS Announcement 2002-18 miles aren’t considered taxable income mainly because of the complexity involved in trying to value them and clarifying which miles were earned from business versus personal travel. This exclusion from taxes extends to other types of in-kind travel benefits, such as earning points for free nights at hotels. For employees who travel frequently, this could add the equivalent of thousands of dollars in tax-free income per year. There are limitations to this policy. If the miles or points are converted to cash, then it is taxable.
Let Them Call
Section 2043 of the Small Business Jobs Act of 2010 caused great relief for many business owners. It basically eliminated the record-keeping requirements of mobile phones and similar communications devices provided to employees by businesses. An additional benefit, later clarified by the IRS, is that the value of the mobile device is not considered taxable income, even if the employee also uses the phone for personal use. Furthermore if a small business reimburses an employee for business use of a personal phone or gives them a cash allowance to cover these expenses it also is income tax free. This is void, however, if you try to skirt income taxes by giving your employees cell phones and cash allowances in lieu of a portion of their pay.
Let Them Eat
Meals provided by employers on the business premises that are primarily for the employer’s convenience are not considered taxable income for employees. There must be a genuine business reason for providing the meals. Simply doing so to give the employee additional compensation doesn’t count and makes them taxable.
