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Department of the Treasury
Internal Revenue Service
Publication 15-B
Cat. No. 29744N
Employer's
Tax Guide to
Fringe
Benefits
For use in 2024
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Contents
What's New ............................... 1
Reminders ............................... 2
Introduction .............................. 2
1. Fringe Benefit Overview ................... 3
2. Fringe Benefit Exclusion Rules .............. 5
Accident and Health Benefits ................ 5
Achievement Awards ..................... 7
Adoption Assistance ...................... 8
Athletic Facilities ......................... 9
De Minimis (Minimal) Benefits ............... 9
Dependent Care Assistance ............... 10
Educational Assistance ................... 10
Employee Discounts ..................... 11
Employee Stock Options .................. 12
Employer-Provided Cell Phones ............. 13
Group-Term Life Insurance Coverage ......... 13
Health Savings Accounts (HSAs) ............ 15
Lodging on Your Business Premises .......... 16
Meals ............................... 17
No-Additional-Cost Services ............... 19
Retirement Planning Services .............. 20
Transportation (Commuting) Benefits ......... 20
Tuition Reduction ....................... 22
Working Condition Benefits ................ 22
3. Fringe Benefit Valuation Rules ............. 25
General Valuation Rule ................... 25
Cents-Per-Mile Rule ..................... 25
Commuting Rule ........................ 26
Lease Value Rule ....................... 27
Unsafe Conditions Commuting Rule .......... 29
4. Rules for Withholding, Depositing, and
Reporting ............................ 30
How To Get Tax Help ....................... 31
Index .................................. 35
Future Developments
For the latest information about developments related to
Pub. 15-B, such as legislation enacted after it was
published, go to IRS.gov/Pub15B. For the latest guidance
and information about COVID-19 tax relief, go to IRS.gov/
Coronavirus.
What's New
Cents-per-mile rule. The business mileage rate for 2024
is 67 cents per mile. You may use this rate to reimburse an
employee for business use of a personal vehicle, and
May 2, 2024
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under certain conditions, you may use the rate under the
cents-per-mile rule to value the personal use of a vehicle
you provide to an employee. See Cents-Per-Mile Rule in
section 3.
Qualified parking exclusion and commuter transpor-
tation benefit. For 2024, the monthly exclusion for quali-
fied parking is $315 and the monthly exclusion for com-
muter highway vehicle transportation and transit passes is
$315. See Qualified Transportation Benefits in section 2.
Contribution limit on a health flexible spending ar-
rangement (FSA). For plan years beginning in 2024, a
cafeteria plan may not allow an employee to request sal-
ary reduction contributions for a health FSA in excess of
$3,200.
Reminders
Moving expense reimbursements. P.L. 115-97, Tax
Cuts and Jobs Act, suspends the exclusion for qualified
moving expense reimbursements from your employee's
income for tax years beginning after 2017 and before
2026. However, the exclusion is still available in the case
of a member of the U.S. Armed Forces on active duty who
moves because of a permanent change of station due to a
military order. The exclusion applies only to reimburse-
ment of moving expenses that the member could deduct if
they had paid or incurred them without reimbursement.
See Moving Expenses in Pub. 3, Armed Forces' Tax
Guide, for the definition of what constitutes a permanent
change of station and to learn which moving expenses are
deductible.
Bicycle commuting reimbursements. P.L. 115-97 sus-
pends the exclusion of qualified bicycle commuting reim-
bursements from your employee's income for tax years
beginning after 2017 and before 2026. See Transportation
(Commuting) Benefits in section 2.
Withholding on supplemental wages. P.L. 115-97 low-
ered the federal income tax withholding rates on supple-
mental wages for tax years beginning after 2017 and be-
fore 2026. See Withholding and depositing taxes in
section 4 for the withholding rates.
Form 1099-NEC, Nonemployee Compensation. Use
Form 1099-NEC to report nonemployee compensation
paid in 2023. The 2023 Form 1099-NEC is due January
31, 2024.
Additional permitted election changes for health cov-
erage under a cafeteria plan. Notice 2014-55, 2014-41
I.R.B. 672, available at IRS.gov/irb/
2014-41_IRB#NOT-2014-55, expands the application of
the permitted change rules for health coverage under a
cafeteria plan and discusses two specific situations in
which a cafeteria plan participant is permitted to revoke
their election under a cafeteria plan during a period of cov-
erage.
Definition of marriage. A marriage of two individuals is
recognized for federal tax purposes if the marriage is rec-
ognized by the state or territory of the United States in
which the marriage is entered into, regardless of legal
residence. Two individuals who enter into a relationship
that is denominated as a marriage under the laws of a for-
eign jurisdiction are recognized as married for federal tax
purposes if the relationship would be recognized as a
marriage under the laws of at least one state or territory of
the United States, regardless of legal residence. Individu-
als who have entered into a registered domestic partner-
ship, civil union, or other similar relationship that isn't de-
nominated as a marriage under the law of the state or
territory of the United States where such relationship was
entered into aren't lawfully married for federal tax purpo-
ses, regardless of legal residence.
Notice 2014-1 discusses how certain rules for cafeteria
plans, including health and dependent care FSAs, and
health savings accounts (HSAs) apply to same-sex spou-
ses participating in employee benefit plans. Notice
2014-1, 2014-2 I.R.B. 270, is available at IRS.gov/irb/
2014-02_IRB#NOT-2014-1.
Getting tax forms, instructions, and publications.
Visit IRS.gov/Forms to download current and prior-year
forms, instructions, and publications.
Ordering tax forms, instructions, and publications.
Go to IRS.gov/OrderForms to order current forms, instruc-
tions, and publications; call 800-829-3676 to order
prior-year forms and instructions. The IRS will process
your order as soon as possible. Don’t resubmit requests
you've already sent us. You can get forms, instructions,
and publications faster online.
Getting answers to your tax questions. If you have a
tax question not answered by this publication, check
IRS.gov and How To Get Tax Help at the end of this publi-
cation.
Photographs of missing children. The IRS is a proud
partner with the National Center for Missing & Exploited
Children® (NCMEC). Photographs of missing children se-
lected by the Center may appear in this publication on pa-
ges that would otherwise be blank. You can help bring
these children home by looking at the photographs and
calling 1-800-THE-LOST (1-800-843-5678) if you recog-
nize a child.
Introduction
This publication supplements Pub. 15, Employer's Tax
Guide, and Pub. 15-A, Employer's Supplemental Tax
Guide. It contains information for employers on the em-
ployment tax treatment of fringe benefits.
Comments and suggestions. We welcome your com-
ments about this publication and your suggestions for fu-
ture editions.
You can send us comments through IRS.gov/
FormComments.
Or you can write to:
Internal Revenue Service
Tax Forms and Publications
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224
2 Publication 15-B (2024)
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Although we can't respond individually to each com-
ment received, we do appreciate your feedback and will
consider your comments as we revise our tax forms, in-
structions, and publications. Don’t send tax questions, tax
returns, or payments to this address.
1. Fringe Benefit Overview
A fringe benefit is a form of pay for the performance of
services. For example, you provide an employee with a
fringe benefit when you allow the employee to use a busi-
ness vehicle to commute to and from work.
Performance of services. A person who performs serv-
ices for you doesn't have to be your employee. A person
may perform services for you as an independent contrac-
tor, partner, or director. Also, for fringe benefit purposes,
treat a person who agrees not to perform services (such
as under a covenant not to compete) as performing serv-
ices.
Provider of benefit. You’re the provider of a fringe bene-
fit if it is provided for services performed for you. You’re
considered the provider of a fringe benefit even if a third
party, such as your client or customer, provides the benefit
to your employee for services the employee performs for
you. For example, if, in exchange for goods or services,
your customer provides daycare services as a fringe ben-
efit to your employees for services they provide for you as
their employer, then you’re the provider of this fringe bene-
fit even though the customer is actually providing the day-
care.
Recipient of benefit. The person who performs services
for you is considered the recipient of a fringe benefit provi-
ded for those services. That person may be considered
the recipient even if the benefit is provided to someone
who didn't perform services for you. For example, your
employee may be the recipient of a fringe benefit you pro-
vide to a member of the employee's family.
Are Fringe Benefits Taxable?
Any fringe benefit you provide is taxable and must be in-
cluded in the recipient's pay unless the law specifically ex-
cludes it. Section 2 discusses the exclusions that apply to
certain fringe benefits. Any benefit not excluded under the
rules discussed in section 2 is taxable.
Including taxable benefits in pay. You must include in
a recipient's pay the amount by which the value of a fringe
benefit is more than the sum of the following amounts.
•
Any amount the law excludes from pay.
•
Any amount the recipient paid for the benefit.
The rules used to determine the value of a fringe benefit
are discussed in section 3.
If the recipient of a taxable fringe benefit is your em-
ployee, the benefit is generally subject to employment
taxes and must be reported on Form W-2, Wage and Tax
Statement. However, you can use special rules to with-
hold, deposit, and report the employment taxes. These
rules are discussed in section 4.
If the recipient of a taxable fringe benefit isn't your em-
ployee, the benefit isn't subject to employment taxes.
However, you may have to report the benefit on one of the
following information returns.
IF the recipient
receives the benefit
as... THEN use...
an independent
contractor
Form 1099-NEC.
a partner Schedule K-1 (Form 1065), Partner's
Share of Income, Deductions, Credits,
etc.
For more information, see the instructions for the forms lis-
ted above.
Cafeteria Plans
A cafeteria plan, including an FSA, provides participants
an opportunity to receive qualified benefits on a pre-tax
basis. It is a written plan that allows your employees to
choose between receiving cash or taxable benefits, in-
stead of certain qualified benefits for which the law pro-
vides an exclusion from wages. If an employee chooses to
receive a qualified benefit under the plan, the fact that the
employee could have received cash or a taxable benefit
instead won't make the qualified benefit taxable.
Generally, a cafeteria plan doesn't include any plan that
offers a benefit that defers pay. However, a cafeteria plan
can include a qualified 401(k) plan as a benefit. Also, cer-
tain life insurance plans maintained by educational institu-
tions can be offered as a benefit even though they defer
pay.
Qualified benefits. A cafeteria plan can include the fol-
lowing benefits discussed in section 2.
•
Accident and health benefits (but not Archer medical
savings accounts (Archer MSAs) or long-term care in-
surance).
•
Adoption assistance.
•
Dependent care assistance.
•
Group-term life insurance coverage (including costs
that can't be excluded from wages).
•
HSAs. Distributions from an HSA may be used to pay
eligible long-term care insurance premiums or to pay
for qualified long-term care services.
Benefits not allowed. A cafeteria plan can't include the
following benefits discussed in section 2.
•
Archer MSAs. See Accident and Health Benefits in
section 2.
•
Athletic facilities.
•
De minimis (minimal) benefits.
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•
Educational assistance.
•
Employee discounts.
•
Employer-provided cell phones.
•
Lodging on your business premises.
•
Meals.
•
No-additional-cost services.
•
Retirement planning services.
•
Transportation (commuting) benefits.
•
Tuition reduction.
•
Working condition benefits.
It also can't include scholarships or fellowships (dis-
cussed in Pub. 970).
Contribution limit on a health FSA. For plan years be-
ginning in 2024, a cafeteria plan may not allow an em-
ployee to request salary reduction contributions for a
health FSA in excess of $3,200.
A cafeteria plan that doesn't limit health FSA contribu-
tions to the dollar limit isn't a cafeteria plan and all benefits
offered under the plan are includible in the employee's
gross income.
For more information, see Notice 2012-40, 2012-26
I.R.B. 1046, available at IRS.gov/irb/
2012-26_IRB#NOT-2012-40.
“Use-or-lose” rule for health FSAs. Instead of a grace
period, you may, at your option, amend your cafeteria plan
to allow an employee's unused contributions to carry over
to the immediately following plan year. For more informa-
tion, see Notice 2013-71, 2013-47 I.R.B. 532, available at
IRS.gov/irb/2013-47_IRB#NOT-2013-71; and Notice
2020-33, 2020-22 I.R.B. 868, available at IRS.gov/irb/
2020-22_IRB#NOT-2020-33.
Employee. For these plans, treat the following individu-
als as employees.
•
A current common-law employee. See section 2 in
Pub. 15.
•
A full-time life insurance agent who is a current statu-
tory employee.
•
A leased employee who has provided services to you
on a substantially full-time basis for at least a year if
the services are performed under your primary direc-
tion or control.
Exception for S corporation shareholders. Don't
treat a 2% shareholder of an S corporation as an em-
ployee of the corporation for this purpose. A 2% share-
holder for this purpose is someone who directly or indi-
rectly owns (at any time during the year) more than 2% of
the corporation's stock or stock with more than 2% of the
voting power. Treat a 2% shareholder as you would a part-
ner in a partnership for fringe benefit purposes, but don't
treat the benefit as a reduction in distributions to the 2%
shareholder. For more information, see Revenue Ruling
91-26, 1991-1 C.B. 184.
Plans that favor highly compensated employees. If
your plan favors highly compensated employees as to eli-
gibility to participate, contributions, or benefits, you must
include in their wages the value of taxable benefits they
could have selected. A plan you maintain under a collec-
tive bargaining agreement doesn't favor highly compensa-
ted employees.
A highly compensated employee for this purpose is any
of the following employees.
1. An officer.
2. A shareholder who owns more than 5% of the voting
power or value of all classes of the employer's stock.
3. An employee who is highly compensated based on
the facts and circumstances.
4. A spouse or dependent of a person described in (1),
(2), or (3).
Plans that favor key employees. If your plan favors key
employees, you must include in their wages the value of
taxable benefits they could have selected. A plan favors
key employees if more than 25% of the total of the nontax-
able benefits you provide for all employees under the plan
go to key employees. However, a plan you maintain under
a collective bargaining agreement doesn't favor key em-
ployees.
A key employee during 2024 is generally an employee
who is either of the following.
1. An officer having annual pay of more than $220,000.
2. An employee who for 2024 is either of the following.
a. A 5% owner of your business.
b. A 1% owner of your business whose annual pay is
more than $150,000.
Simple Cafeteria Plans for Small
Businesses
Eligible employers meeting contribution requirements and
eligibility and participation requirements can establish a
simple cafeteria plan. Simple cafeteria plans are treated
as meeting the nondiscrimination requirements of a cafe-
teria plan and certain benefits under a cafeteria plan.
Eligible employer. You’re an eligible employer if you
employed an average of 100 or fewer employees during
either of the 2 preceding years. If your business wasn't in
existence throughout the preceding year, you’re eligible if
you reasonably expect to employ an average of 100 or
fewer employees in the current year. If you establish a sim-
ple cafeteria plan in a year that you employ an average of
100 or fewer employees, you’re considered an eligible em-
ployer for any subsequent year until the year after you em-
ploy an average of 200 or more employees.
Eligibility and participation requirements. These re-
quirements are met if all employees who had at least
1,000 hours of service for the preceding plan year are eli-
gible to participate and each employee eligible to
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participate in the plan may elect any benefit available un-
der the plan. You may elect to exclude from the plan em-
ployees who:
1. Are under age 21 before the close of the plan year,
2. Have less than 1 year of service with you as of any
day during the plan year,
3. Are covered under a collective bargaining agreement
if there is evidence that the benefits covered under the
cafeteria plan were the subject of good-faith bargain-
ing, or
4. Are nonresident aliens working outside the United
States whose income didn't come from a U.S. source.
Contribution requirements. You must make a contribu-
tion to provide qualified benefits on behalf of each quali-
fied employee in an amount equal to:
1. A uniform percentage (not less than 2%) of the em-
ployee’s compensation for the plan year; or
2. An amount that is at least 6% of the employee’s com-
pensation for the plan year or twice the amount of the
salary reduction contributions of each qualified em-
ployee, whichever is less.
If the contribution requirements are met using option (2),
the rate of contribution to any salary reduction contribution
of a highly compensated or key employee can't be greater
than the rate of contribution to any other employee.
More information. For more information about cafeteria
plans, see section 125 of the Internal Revenue Code and
its regulations.
2. Fringe Benefit Exclusion
Rules
This section discusses the exclusion rules that apply to
fringe benefits. These rules exclude all or part of the value
of certain benefits from the recipient's pay.
In most cases, the excluded benefits aren't subject to
federal income tax withholding, social security tax, Medi-
care tax, federal unemployment (FUTA) tax, or Railroad
Retirement Tax Act (RRTA) taxes and aren't reported on
Form W-2.
This section discusses the exclusion rules for the fol-
lowing fringe benefits.
•
Accident and health benefits.
•
Achievement awards.
•
Adoption assistance.
•
Athletic facilities.
•
De minimis (minimal) benefits.
•
Dependent care assistance.
•
Educational assistance.
•
Employee discounts.
•
Employee stock options.
•
Employer-provided cell phones.
•
Group-term life insurance coverage.
•
HSAs.
•
Lodging on your business premises.
•
Meals.
•
No-additional-cost services.
•
Retirement planning services.
•
Transportation (commuting) benefits.
•
Tuition reduction.
•
Working condition benefits.
See Table 2-1 for an overview of the employment tax
treatment of these benefits.
Accident and Health Benefits
This exclusion applies to contributions you make to an ac-
cident or health plan for an employee, including the follow-
ing.
•
Contributions to the cost of accident or health insur-
ance including qualified long-term care insurance.
•
Contributions to a separate trust or fund that directly or
through insurance provides accident or health bene-
fits.
•
Contributions to Archer MSAs or HSAs (discussed in
Pub. 969).
This exclusion also applies to payments you directly or
indirectly make to an employee under an accident or
health plan for employees that are either of the following.
•
Payments or reimbursements of medical expenses.
•
Payments for specific permanent injuries (such as the
loss of the use of an arm or leg). The payments must
be figured without regard to the period the employee is
absent from work.
Accident or health plan. This is an arrangement that
provides benefits for your employees, their spouses, their
dependents, and their children (under age 27 at the end of
the tax year) in the event of personal injury or sickness.
The plan may be insured or noninsured and doesn't need
to be in writing.
Employee. For this exclusion, treat the following individ-
uals as employees.
•
A current common-law employee.
•
A full-time life insurance agent who is a current statu-
tory employee.
•
A retired employee.
•
A former employee you maintain coverage for based
on the employment relationship.
•
A surviving spouse of an individual who died while an
employee.
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•
A surviving spouse of a retired employee.
•
For the exclusion of contributions to an accident or
health plan, a leased employee who has provided
services to you on a substantially full-time basis for at
least a year if the services are performed under your
primary direction or control.
Special rule for certain government plans. For cer-
tain government accident and health plans, payments to a
deceased employee's beneficiary may qualify for the ex-
clusion from gross income if the other requirements for ex-
clusion are met. See section 105(j) for details.
Exception for S corporation shareholders. Don't
treat a 2% shareholder of an S corporation as an em-
ployee of the corporation for this purpose. A 2%
shareholder is someone who directly or indirectly owns (at
any time during the year) more than 2% of the corpora-
tion's stock or stock with more than 2% of the voting
power. Treat a 2% shareholder as you would a partner in a
partnership for fringe benefit purposes, but don't treat the
benefit as a reduction in distributions to the 2% share-
holder. For more information, see Revenue Ruling 91-26,
1991-1 C.B. 184.
Exclusion from wages. You can generally exclude the
value of accident or health benefits you provide to an em-
ployee from the employee's wages.
Exception for certain long-term care benefits. You
can't exclude contributions to the cost of long-term care
insurance from an employee's wages subject to federal
Table 2-1. Special Rules for Various Types of Fringe Benefits
(For more information, see the full discussion in this section.)
Treatment Under Employment Taxes
Type of Fringe Benefit Income Tax Withholding Social Security and Medicare
(including Additional Medicare
Tax when wages are paid in
excess of $200,000)
1
Federal Unemployment (FUTA)
Accident and health benefits
Exempt (except 2%
shareholder-employees of S
corporations).
Exempt Exempt
Achievement awards Exempt
2
up to $1,600 for qualified plan awards ($400 for nonqualified awards).
Adoption assistance Exempt
2,3
Taxable Taxable
Athletic facilities
Exempt if substantially all use during the calendar year is by employees, their spouses, and their dependent
children, and the facility is operated by the employer on premises owned or leased by the employer.
De minimis (minimal) benefits Exempt Exempt Exempt
Dependent care assistance Exempt
3
up to certain limits, $5,000 ($2,500 for married employee filing separate return).
Educational assistance Exempt up to $5,250 of benefits each year. (See Educational Assistance, later in this section.)
Employee discounts Exempt
3
up to certain limits. (See Employee Discounts, later in this section.)
Employee stock options See Employee Stock Options, later in this section.
Employer-provided cell phones Exempt if provided primarily for noncompensatory business purposes.
Group-term life insurance coverage
Exempt Exempt
2,4,6
up to cost of $50,000 of
coverage. (Special rules apply to
former employees.)
Exempt
Health savings accounts (HSAs) Exempt for qualified individuals up to the HSA contribution limits. (See Health Savings Accounts, later in this
section.)
Lodging on your business premises Exempt
2
if furnished on your business premises, for your convenience, and as a condition of employment.
Meals
Exempt
2
if furnished on your business premises for your convenience.
Exempt if de minimis.
No-additional-cost services Exempt
3
Exempt
3
Exempt
3
Retirement planning services Exempt
5
Exempt
5
Exempt
5
Transportation (commuting) benefits
Exempt
2
up to certain limits if for rides in a commuter highway vehicle and/or transit passes ($315) or qualified
parking ($315). (See Transportation (Commuting) Benefits, later in this section.)
Exempt if de minimis.
Tuition reduction Exempt
3
if for undergraduate education (or graduate education if the employee performs teaching or research
activities).
Working condition benefits Exempt Exempt Exempt
1
Or other railroad retirement taxes, if applicable.
2
Exemption doesn't apply to S corporation employees who are 2% shareholders.
3
Exemption doesn't apply to certain highly compensated employees under a program that favors those employees.
4
Exemption doesn't apply to certain key employees under a plan that favors those employees.
5
Exemption doesn't apply to services for tax preparation, accounting, legal, or brokerage services.
6
You must include in your employee's wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid
toward the insurance. Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Also, show it in box 12 with code C. The amount is subject to social
security and Medicare taxes, and you may, at your option, withhold federal income tax.
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income tax withholding if the coverage is provided through
a flexible spending or similar arrangement. This is a bene-
fit program that reimburses specified expenses up to a
maximum amount that is reasonably available to the em-
ployee and is less than five times the total cost of the in-
surance. However, you can exclude these contributions
from the employee's wages subject to social security,
Medicare, and FUTA taxes.
S corporation shareholders. Because you can't
treat a 2% shareholder of an S corporation as an em-
ployee for this exclusion, you must include the value of ac-
cident or health benefits you provide to the employee in
the employee's wages subject to federal income tax with-
holding. However, you can exclude the value of these ben-
efits (other than payments for specific injuries or illnesses
not made under a plan set up to benefit all employees or
certain groups of employees) from the employee's wages
subject to social security, Medicare, and FUTA taxes. See
Announcement 92-16 for more information. You can find
Announcement 92-16 on page 53 of Internal Revenue Bul-
letin 1992-5.
Exception for highly compensated employees. If
your plan is a self-insured medical reimbursement plan
that favors highly compensated employees, you must in-
clude all or part of the amounts you pay to these employ-
ees in box 1 of Form W-2. However, you can exclude
these amounts (other than payments for specific injuries
or illnesses not made under a plan set up to benefit all em-
ployees or certain groups of employees) from the employ-
ee's wages subject to income tax withholding and social
security, Medicare, and FUTA taxes.
A self-insured plan is a plan that reimburses your em-
ployees for medical expenses not covered by an accident
or health insurance policy.
A highly compensated employee for this exception is
any of the following individuals.
•
One of the five highest paid officers.
•
An employee who owns (directly or indirectly) more
than 10% in value of the employer's stock.
•
An employee who is among the highest paid 25% of
all employees (other than those who can be excluded
from the plan).
For more information on this exception, see section
105(h) of the Internal Revenue Code and its regulations.
COBRA premiums. The exclusion for accident and
health benefits applies to amounts you pay to maintain
medical coverage for a current or former employee under
the Combined Omnibus Budget Reconciliation Act of
1986 (COBRA). The exclusion applies regardless of the
length of employment, whether you directly pay the premi-
ums or reimburse the former employee for premiums paid,
and whether the employee's separation is permanent or
temporary.
Qualified small employer health reimbursement ar-
rangements (QSEHRAs). QSEHRAs allow eligible small
employers to pay or reimburse medical care expenses, in-
cluding health insurance premiums, of eligible employees
and their family members. A QSEHRA isn’t a group health
plan, and, therefore, isn't subject to group health plan re-
quirements. Generally, payments from a QSEHRA to reim-
burse an eligible employee’s medical expenses aren’t in-
cludible in the employee’s gross income if the employee
has coverage that provides minimum essential coverage,
as defined in section 5000A(f) of the Internal Revenue
Code.
A QSEHRA is an arrangement that meets all the follow-
ing requirements.
1. The arrangement is funded solely by you, and no sal-
ary reduction contributions may be made under the
arrangement.
2. The arrangement provides, after the eligible employee
provides proof of coverage, for the payment or reim-
bursement of the medical expenses incurred by the
employee or the employee’s family members.
3. The amount of payments and reimbursements
doesn’t exceed $6,150 ($12,450, for family coverage)
for 2024.
4. The arrangement is generally provided on the same
terms to all your eligible employees. However, your
QSEHRA may exclude employees who haven’t com-
pleted 90 days of service, employees who haven’t at-
tained age 25 before the beginning of the plan year,
part-time or seasonal employees, employees covered
by a collective bargaining agreement if health benefits
were the subject of good-faith bargaining, and em-
ployees who are nonresident aliens with no earned in-
come from sources within the United States.
Eligible employer. To be an eligible employer, you
must not be an applicable large employer, which is de-
fined as an employer that generally employed at least 50
full-time employees, including full-time equivalent employ-
ees, in the prior calendar year. You must also not offer a
group health plan (including a health reimbursement ar-
rangement (HRA) or a health FSA) to any of your employ-
ees. For more information about the Affordable Care Act
and group health plan requirements, go to IRS.gov/ACA.
For more information about QSEHRAs, including informa-
tion about the requirement to give a written notice to each
eligible employee, see Notice 2017-67, 2017-47 I.R.B.
517, available at IRS.gov/irb/2017-47_IRB#NOT-2017-67.
Reporting requirements. You must report in box 12
of Form W-2 using code FF the amount of payments and
reimbursements that your employee is entitled to receive
from the QSEHRA for the calendar year without regard to
the amount of payments or reimbursements actually re-
ceived. For example, if your QSEHRA provides a permit-
ted benefit of $3,000 and your employee receives reim-
bursements of $2,000, on Form W-2, you would report a
permitted benefit of $3,000 in box 12 using code FF.
Achievement Awards
This exclusion applies to the value of any tangible per-
sonal property you give to an employee as an award for ei-
ther length of service or safety achievement. The
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exclusion doesn't apply to awards of cash, cash equiva-
lents, gift cards, gift coupons, or gift certificates (other
than arrangements granting only the right to select and re-
ceive tangible personal property from a limited assortment
of items preselected or preapproved by you). The exclu-
sion also doesn't apply to vacations, meals, lodging, tick-
ets to theater or sporting events, stocks, bonds, other se-
curities, and other similar items. An achievement award
must meet all the following requirements.
•
It is given to an employee for length of service or
safety achievement.
•
It is awarded as part of a meaningful presentation.
•
It is awarded under conditions and circumstances that
don't create a significant likelihood of disguised pay.
Employee. For this exclusion, treat the following individ-
uals as employees.
•
A current employee.
•
A former common-law employee you maintain cover-
age for in consideration of or based on an agreement
relating to prior service as an employee.
•
A leased employee who has provided services to you
on a substantially full-time basis for at least a year if
the services are performed under your primary direc-
tion or control.
Exception for S corporation shareholders. Don't
treat a 2% shareholder of an S corporation as an em-
ployee of the corporation for this purpose. A 2% share-
holder is someone who directly or indirectly owns (at any
time during the year) more than 2% of the corporation's
stock or stock with more than 2% of the voting power.
Treat a 2% shareholder as you would a partner in a part-
nership for fringe benefit purposes, but don't treat the ben-
efit as a reduction in distributions to the 2% shareholder.
For more information, see Revenue Ruling 91-26, 1991-1
C.B. 184.
Exclusion from wages. You can generally exclude the
value of achievement awards you give to an employee
from the employee's wages if their cost isn't more than the
amount you can deduct as a business expense for the
year. The excludable annual amount is $1,600 ($400 for
awards that aren't “qualified plan awards”).
Deduction limit. Your deduction for the cost of em-
ployee achievement awards given to any one employee
during the tax year is limited to the following.
•
$400 for awards that aren't qualified plan awards.
•
$1,600 for all awards, whether or not qualified plan
awards.
A qualified plan award is an achievement award given
as part of an established written plan or program that
doesn't favor highly compensated employees as to eligibil-
ity or benefits.
A highly compensated employee is an employee who
meets either of the following tests.
1. The employee was a 5% owner at any time during the
year or the preceding year.
2. The employee received more than $150,000 in pay for
the preceding year.
You can choose to ignore test (2) if the employee wasn't
also in the top 20% of employees when ranked by pay for
the preceding year.
An award isn't a qualified plan award if the average cost
of all the employee achievement awards given during the
tax year (that would be qualified plan awards except for
this limit) is more than $400. To figure this average cost,
ignore awards of nominal value.
Deduct achievement awards, up to the maximum
amounts listed earlier, as a nonwage business expense on
your return or business schedule.
To determine for 2024 whether an achievement
award is a “qualified plan award” under the deduc-
tion rules described under Deduction limit above,
treat any employee who received more than $150,000 in
pay for 2023 as a highly compensated employee.
If the cost of awards given to an employee is more than
your allowable deduction, include in the employee's wa-
ges the larger of the following amounts.
•
The part of the cost that is more than your allowable
deduction (up to the value of the awards).
•
The amount by which the value of the awards exceeds
your allowable deduction.
Exclude the remaining value of the awards from the em-
ployee's wages.
Adoption Assistance
An adoption assistance program is a separate written plan
of an employer that meets all of the following require-
ments.
1. It benefits employees who qualify under rules set up
by you, which don't favor highly compensated employ-
ees or their dependents. To determine whether your
plan meets this test, don't consider employees exclu-
ded from your plan who are covered by a collective
bargaining agreement if there is evidence that adop-
tion assistance was a subject of good-faith bargain-
ing.
2. It doesn't pay more than 5% of its payments during
the year for shareholders or owners (or their spouses
or dependents). A shareholder or owner is someone
who owns (on any day of the year) more than 5% of
the stock or of the capital or profits interest of your
business.
3. You give reasonable notice of the plan to eligible em-
ployees.
4. Employees provide reasonable substantiation that
payments or reimbursements are for qualifying expen-
ses.
CAUTION
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For this exclusion, a highly compensated employee for
2024 is an employee who meets either of the following
tests.
1. The employee was a 5% owner at any time during the
year or the preceding year.
2. The employee received more than $150,000 in pay for
the preceding year.
You can choose to ignore test (2) if the employee wasn't
also in the top 20% of employees when ranked by pay for
the preceding year.
You must exclude all payments or reimbursements you
make under an adoption assistance program for an em-
ployee's qualified adoption expenses from the employee's
wages subject to federal income tax withholding. How-
ever, you can't exclude these payments from wages sub-
ject to social security, Medicare, and FUTA taxes.
You must report all qualifying adoption expenses you
paid or reimbursed under your adoption assistance pro-
gram for each employee for the year in box 12 of the em-
ployee's Form W-2. Report all amounts including those in
excess of the $16,810 exclusion for 2024. Use code T to
identify this amount.
Exception for S corporation shareholders. For this
exclusion, don't treat a 2% shareholder of an S corpora-
tion as an employee of the corporation. A 2% shareholder
is someone who directly or indirectly owns (at any time
during the year) more than 2% of the corporation's stock
or stock with more than 2% of the voting power. Treat a
2% shareholder as you would a partner in a partnership
for fringe benefit purposes, but don't treat the benefit as a
reduction in distributions to the 2% shareholder. For more
information, see Revenue Ruling 91-26, 1991-1 C.B. 184.
More information. For more information on adoption
benefits, see Notice 97-9, which is on page 35 of Internal
Revenue Bulletin 1997-2 at IRS.gov/pub/irs-irbs/
irb97-02.pdf. Advise your employees to see the Instruc-
tions for Form 8839.
Athletic Facilities
You can exclude the value of an employee's use of an
on-premises gym or other athletic facility you operate from
an employee's wages if substantially all use of the facility
during the calendar year is by your employees, their spou-
ses, and their dependent children. For this purpose, an
employee's dependent child is a child or stepchild who is
the employee's dependent or who, if both parents are de-
ceased, hasn't attained the age of 25. The exclusion
doesn't apply to any athletic facility if access to the facility
is made available to the general public through the sale of
memberships, the rental of the facility, or a similar arrange-
ment.
On-premises facility. The athletic facility must be loca-
ted on premises you own or lease and must be operated
by you. It doesn't have to be located on your business
premises. However, the exclusion doesn't apply to an ath-
letic facility that is a facility for residential use, such as ath-
letic facilities that are part of a resort.
Employee. For this exclusion, treat the following individ-
uals as employees.
•
A current employee.
•
A former employee who retired or left on disability.
•
A surviving spouse of an individual who died while an
employee.
•
A surviving spouse of a former employee who retired
or left on disability.
•
A leased employee who has provided services to you
on a substantially full-time basis for at least a year if
the services are performed under your primary direc-
tion or control.
•
A partner who performs services for a partnership.
De Minimis (Minimal) Benefits
You can exclude the value of a de minimis benefit you pro-
vide to an employee from the employee's wages. A de
minimis benefit is any property or service you provide to
an employee that has so little value (taking into account
how frequently you provide similar benefits to your em-
ployees) that accounting for it would be unreasonable or
administratively impracticable. Cash and cash equivalent
fringe benefits (for example, gift certificates, gift cards,
and the use of a charge card or credit card), no matter
how little, are never excludable as a de minimis benefit.
However, meal money and local transportation fare, if pro-
vided on an occasional basis and because of overtime
work, may be excluded, as discussed later.
Examples of de minimis benefits include the following.
•
Personal use of an employer-provided cell phone pro-
vided primarily for noncompensatory business purpo-
ses. See Employer-Provided Cell Phones, later in this
section, for details.
•
Occasional personal use of a company copying ma-
chine if you sufficiently control its use so that at least
85% of its use is for business purposes.
•
Holiday or birthday gifts, other than cash, with a low
fair market value (FMV). Also, flowers or fruit or similar
items provided to employees under special circum-
stances (for example, on account of illness, a family
crisis, or outstanding performance).
•
Group-term life insurance payable on the death of an
employee's spouse or dependent if the face amount
isn't more than $2,000.
•
Certain meals. See Meals, later in this section, for de-
tails.
•
Occasional parties or picnics for employees and their
guests.
•
Occasional tickets for theater or sporting events.
•
Certain transportation fare. See Transportation (Com-
muting) Benefits, later in this section, for details.
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Some examples of benefits that aren’t excludable as de
minimis fringe benefits are season tickets to sporting or
theatrical events; the commuting use of an employer-pro-
vided automobile or other vehicle more than 1 day a
month; membership in a private country club or athletic fa-
cility, regardless of the frequency with which the employee
uses the facility; and use of employer-owned or -leased fa-
cilities (such as an apartment, hunting lodge, boat, etc.)
for a weekend. If a benefit provided to an employee
doesn't qualify as de minimis (for example, the frequency
exceeds a limit described earlier), then generally the en-
tire benefit must be included in income.
Employee. For this exclusion, treat any recipient of a de
minimis benefit as an employee.
Dependent Care Assistance
This exclusion applies to household and dependent care
services you directly or indirectly pay for or provide to an
employee under a written dependent care assistance pro-
gram (DCAP) that covers only your employees. The serv-
ices must be for a qualifying person's care and must be
provided to allow the employee to work. These require-
ments are basically the same as the tests the employee
would have to meet to claim the dependent care credit if
the employee paid for the services. For more information,
see Can You Claim the Credit? in Pub. 503.
Employee. For this exclusion, treat the following individ-
uals as employees.
•
A current employee.
•
A leased employee who has provided services to you
on a substantially full-time basis for at least a year if
the services are performed under your primary direc-
tion or control.
•
Yourself (if you’re a sole proprietor).
•
A partner who performs services for a partnership.
Exclusion from wages. You can exclude the value of
benefits you provide to an employee under a DCAP from
the employee's wages if you reasonably believe that the
employee can exclude the benefits from gross income.
An employee can generally exclude from gross income
up to $5,000 ($2,500 if married filing separately) of bene-
fits received under a DCAP each year.
However, the exclusion can't be more than the smaller
of the earned income of either the employee or employ-
ee's spouse. Special rules apply to determine the earned
income of a spouse who is either a student or not able to
care for themselves. For more information on the earned
income limit, see Pub. 503.
Exception for highly compensated employees.
You can't exclude dependent care assistance from the wa-
ges of a highly compensated employee unless the bene-
fits provided under the program don't favor highly compen-
sated employees and the program meets the
requirements described in section 129(d) of the Internal
Revenue Code.
For this exclusion, a highly compensated employee for
2024 is an employee who meets either of the following
tests.
1. The employee was a 5% owner at any time during the
year or the preceding year.
2. The employee received more than $150,000 in pay for
the preceding year.
You can choose to ignore test (2) if the employee wasn't
also in the top 20% of employees when ranked by pay for
the preceding year.
Form W-2. Report the value of all dependent care assis-
tance you provide to an employee under a DCAP in
box 10 of the employee's Form W-2. Include any amounts
you can't exclude from the employee's wages in boxes 1,
3, and 5. Report in box 10 both the nontaxable portion of
assistance (up to $5,000) and any assistance above that
amount that is taxable to the employee.
Example. Oak Co. provides a dependent care assis-
tance FSA to its employees through a cafeteria plan. In
addition, it provides occasional on-site dependent care to
its employees at no cost. Emily, an employee of Oak Co.,
had $4,500 deducted from her pay for the dependent care
FSA. In addition, Emily used the on-site dependent care
several times. The FMV of the on-site care was $700. Emi-
ly's Form W-2 should report $5,200 of dependent care as-
sistance in box 10 ($4,500 FSA plus $700 on-site depend-
ent care). Boxes 1, 3, and 5 should include $200 (the
amount in excess of the nontaxable assistance), and ap-
plicable taxes should be withheld on that amount.
Educational Assistance
This exclusion applies to educational assistance you pro-
vide to employees under an educational assistance pro-
gram. The exclusion also applies to graduate-level cour-
ses.
Educational assistance means amounts you pay or in-
cur for your employees' education expenses. These ex-
penses generally include the cost of books, equipment,
fees, supplies, and tuition. However, these expenses don't
include the cost of a course or other education involving
sports, games, or hobbies, unless the education:
•
Has a reasonable relationship to your business, or
•
Is required as part of a degree program.
Education expenses don't include the cost of tools or
supplies (other than textbooks) your employee is allowed
to keep at the end of the course. Nor do they include the
cost of lodging, meals, or transportation. Your employee
must be able to provide substantiation to you that the edu-
cational assistance provided was used for qualifying edu-
cation expenses.
Exclusion for employer payments of student loans.
Employer-provided educational assistance benefits in-
clude payments made after March 27, 2020, and before
January 1, 2026, whether paid to the employee or to a
lender, of principal or interest on any qualified education
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loan incurred by the employee for education of the em-
ployee. Qualified education loans are defined in chap-
ter 10 of Pub. 970.
Educational assistance program. An educational as-
sistance program is a separate written plan that provides
educational assistance only to your employees. The pro-
gram qualifies only if all of the following tests are met.
•
The program benefits employees who qualify under
rules set up by you that don't favor highly compensa-
ted employees. To determine whether your program
meets this test, don't consider employees excluded
from your program who are covered by a collective
bargaining agreement if there is evidence that educa-
tional assistance was a subject of good-faith bargain-
ing.
•
The program doesn't provide more than 5% of its ben-
efits during the year for shareholders or owners (or
their spouses or dependents). A shareholder or owner
is someone who owns (on any day of the year) more
than 5% of the stock or of the capital or profits interest
of your business.
•
The program doesn't allow employees to choose to re-
ceive cash or other benefits that must be included in
gross income instead of educational assistance.
•
You give reasonable notice of the program to eligible
employees.
Your program can cover former employees if their employ-
ment is the reason for the coverage.
For this exclusion, a highly compensated employee for
2024 is an employee who meets either of the following
tests.
1. The employee was a 5% owner at any time during the
year or the preceding year.
2. The employee received more than $150,000 in pay for
the preceding year.
You can choose to ignore test (2) if the employee wasn't
also in the top 20% of employees when ranked by pay for
the preceding year.
Employee. For this exclusion, treat the following individ-
uals as employees.
•
A current employee.
•
A former employee who retired, left on disability, or
was laid off.
•
A leased employee who has provided services to you
on a substantially full-time basis for at least a year if
the services are performed under your primary direc-
tion or control.
•
Yourself (if you’re a sole proprietor).
•
A partner who performs services for a partnership.
Exclusion from wages. You can exclude up to $5,250
of educational assistance you provide to an employee un-
der an educational assistance program from the employ-
ee's wages each year.
Assistance over $5,250. If you don't have an educa-
tional assistance plan, or you provide an employee with
assistance exceeding $5,250, you must include the value
of these benefits as wages, unless the benefits are work-
ing condition benefits. Working condition benefits may be
excluded from wages. Property or a service provided is a
working condition benefit to the extent that if the employee
paid for it, the amount paid would have been allowable as
a business or depreciation expense. See Working Condi-
tion Benefits, later in this section.
Employee Discounts
This exclusion applies to a price reduction you give your
employee on property or services you offer to customers
in the ordinary course of the line of business in which the
employee performs substantial services. It applies
whether the property or service is provided at no charge
(in which case only part of the discount may be excludable
as a qualified employee discount) or at a reduced price. It
also applies if the benefit is provided through a partial or
total cash rebate.
The benefit may be provided either directly by you or in-
directly through a third party. For example, an employee of
an appliance manufacturer may receive a qualified em-
ployee discount on the manufacturer's appliances pur-
chased at a retail store that offers the appliances for sale
to customers.
Employee discounts don't apply to discounts on real
property or discounts on personal property of a kind com-
monly held for investment (such as stocks or bonds). They
also don't include discounts on a line of business of the
employer for which the employee doesn't provide substan-
tial services, or discounts on property or services of a kind
that aren't offered for sale to customers. Therefore, dis-
counts on items sold in an employee store that aren't sold
to customers aren't excluded from employee income.
Also, employee discounts provided by another employer
through a reciprocal agreement aren't excluded.
Employee. For this exclusion, treat the following individ-
uals as employees.
•
A current employee.
•
A former employee who retired or left on disability.
•
A surviving spouse of an individual who died while an
employee.
•
A surviving spouse of an employee who retired or left
on disability.
•
A leased employee who has provided services to you
on a substantially full-time basis for at least a year if
the services are performed under your primary direc-
tion or control.
•
A partner who performs services for a partnership.
Treat discounts you provide to the spouse or dependent
child of an employee as provided to the employee. For this
fringe benefit, dependent child is a child or stepchild who
is the employee's dependent or who, if both parents are
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deceased, hasn't attained the age of 25. Treat a child of
divorced parents as a dependent of both parents.
Exclusion from wages. You can generally exclude the
value of an employee discount you provide an employee
from the employee's wages, up to the following limits.
•
For a discount on services, 20% of the price you
charge nonemployee customers for the service.
•
For a discount on merchandise or other property, your
gross profit percentage times the price you charge
nonemployee customers for the property.
Generally, determine your gross profit percentage in the
line of business based on all property you offer to custom-
ers (including employee customers) and your experience
during the tax year immediately before the tax year in
which the discount is available. To figure your gross profit
percentage, subtract the total cost of the property from the
total sales price of the property and divide the result by the
total sales price of the property. Employers that are in their
first year of existence may estimate their gross profit per-
centage based on its mark-up from cost or refer to an ap-
propriate industry average. If substantial changes in an
employer's business indicate at any time that it is inappro-
priate for the prior year's gross profit percentage to be
used for the current year, the employer must, within a rea-
sonable period, redetermine the gross profit percentage
for the remaining portion of the current year as if such por-
tion of the year were the first year of the employer's exis-
tence.
Exception for highly compensated employees.
You can't exclude from the wages of a highly compensa-
ted employee any part of the value of a discount that isn't
available on the same terms to one of the following
groups.
•
All of your employees.
•
A group of employees defined under a reasonable
classification you set up that doesn't favor highly com-
pensated employees.
For this exclusion, a highly compensated employee for
2024 is an employee who meets either of the following
tests.
1. The employee was a 5% owner at any time during the
year or the preceding year.
2. The employee received more than $150,000 in pay for
the preceding year.
You can choose to ignore test (2) if the employee wasn't
also in the top 20% of employees when ranked by pay for
the preceding year.
Employee Stock Options
There are three kinds of stock options—incentive stock
options, employee stock purchase plan options, and non-
statutory (nonqualified) stock options.
Wages for social security, Medicare, and FUTA taxes
don't include remuneration resulting from the exercise of
an incentive stock option or an employee stock purchase
plan option, or from any disposition of stock acquired by
exercising such an option.
Additionally, federal income tax withholding isn't re-
quired on the income resulting from a disqualifying dispo-
sition of stock acquired by the exercise of an incentive
stock option or an employee stock purchase plan option,
or on income equal to the discount portion of stock ac-
quired by the exercise of an employee stock purchase
plan option resulting from any qualifying disposition of the
stock. The employer must report as income in box 1 of
Form W-2 (a) the discount portion of stock acquired by the
exercise of an employee stock purchase plan option upon
a qualifying disposition of the stock, and (b) the spread
(between the exercise price and the FMV of the stock at
the time of exercise) upon a disqualifying disposition of
stock acquired by the exercise of an incentive stock option
or an employee stock purchase plan option.
An employer must report the excess of the FMV of
stock received upon exercise of a nonstatutory stock op-
tion over the amount paid for the stock option on Form
W-2 in boxes 1, 3 (up to the social security wage base),
and 5, and in box 12 using the code V. See Regulations
section 1.83-7.
An employee who transfers their interest in nonstatu-
tory stock options to the employee's former spouse inci-
dent to a divorce isn't required to include an amount in
gross income upon the transfer. The former spouse, rather
than the employee, is required to include an amount in
gross income when the former spouse exercises the stock
options. See Revenue Ruling 2002-22 and Revenue Rul-
ing 2004-60 for details. You can find Revenue Ruling
2002-22 on page 849 of Internal Revenue Bulletin
2002-19 at IRS.gov/pub/irs-irbs/irb02-19.pdf. Revenue
Ruling 2004-60, 2004-24 I.R.B. 1051, is available at
IRS.gov/irb/2004-24_IRB#RR-2004-60.
Employee stock options aren't subject to Railroad
Retirement Tax. In Wisconsin Central Ltd. v. United
States, 138 S. Ct. 2067, the U. S. Supreme Court ruled
that employee stock options (whether statutory or nonsta-
tutory) aren't “money remuneration” subject to the RRTA. If
you're a railroad employer, don't withhold Tier 1 and Tier 2
taxes on compensation from railroad employees covered
by the RRTA exercising such options. You must still with-
hold federal income tax on taxable compensation from
railroad employees exercising their options.
Section 83(i) election to defer income on equity
grants. Under section 83(i) of the Internal Revenue
Code, qualified employees who are granted stock options
or restricted stock units (RSUs) and who later receive
stock upon exercise of the option or upon settlement of
the RSU (qualified stock) may elect to defer the recogni-
tion of income for up to 5 years if the corporation's stock
wasn’t readily tradable on an established securities mar-
ket during any prior calendar year, if the corporation has a
written plan under which not less than 80% of all U.S. em-
ployees are granted options or RSUs with the same rights
and privileges to receive qualified stock, and if certain
other requirements are met. An election under section
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83(i) applies only for federal income tax purposes. The
election has no effect on the application of social security,
Medicare, and FUTA taxes. For federal income tax purpo-
ses, the employer must withhold federal income tax at
37% in the tax year that the amount deferred is included in
the employee's income. If a section 83(i) election is made
for an option exercise, that option will not be considered
an incentive stock option or an option granted pursuant to
an employee stock purchase plan. These rules apply to
stock attributable to options exercised, or RSUs settled,
after December 31, 2017. For more information, see sec-
tion 83(i); and Notice 2018-97, 2018-52 I.R.B. 1062, avail-
able at IRS.gov/irb/2018-52_IRB#NOT-2018-97.
Reporting requirements. For each employee, you
must report in box 12 of Form W-2 using code GG the
amount included in income in the calendar year from
qualified equity grants under section 83(i). You must also
report in box 12 using code HH the total amount of income
deferred under section 83(i) determined as of the close of
the calendar year.
More information. For more information about em-
ployee stock options, see sections 83, 421, 422, and 423
of the Internal Revenue Code and their related regula-
tions.
Employer-Provided Cell Phones
The value of the business use of an employer-provided
cell phone, provided primarily for noncompensatory busi-
ness reasons, is excludable from an employee's income
as a working condition fringe benefit. Personal use of an
employer-provided cell phone, provided primarily for non-
compensatory business reasons, is excludable from an
employee's income as a de minimis fringe benefit. The
term “cell phone” also includes other similar telecommuni-
cations equipment. For the rules relating to these types of
benefits, see De Minimis (Minimal) Benefits, earlier in this
section, and Working Condition Benefits, later in this sec-
tion.
Noncompensatory business purposes. You provide a
cell phone primarily for noncompensatory business purpo-
ses if there are substantial business reasons for providing
the cell phone. Examples of substantial business reasons
include the employer's:
•
Need to contact the employee at all times for work-re-
lated emergencies,
•
Requirement that the employee be available to speak
with clients at times when the employee is away from
the office, and
•
Need to speak with clients located in other time zones
at times outside the employee's normal workday.
Cell phones provided to promote goodwill, boost
morale, or attract prospective employees. You can't
exclude from an employee's wages the value of a cell
phone provided to promote goodwill of an employee, to at-
tract a prospective employee, or as a means of providing
additional compensation to an employee.
Additional information. For additional information on
the tax treatment of employer-provided cell phones, see
Notice 2011-72, 2011-38 I.R.B. 407, available at
IRS.gov/irb/2011-38_IRB#NOT-2011-72.
Group-Term Life Insurance Coverage
This exclusion applies to life insurance coverage that
meets all the following conditions.
•
It provides a general death benefit that isn't included in
income.
•
You provide it to a group of employees. See The
10-employee rule, later.
•
It provides an amount of insurance to each employee
based on a formula that prevents individual selection.
This formula must use factors such as the employee's
age, years of service, pay, or position.
•
You provide it under a policy you directly or indirectly
carry. Even if you don't pay any of the policy's cost,
you’re considered to carry it if you arrange for payment
of its cost by your employees and charge at least one
employee less than, and at least one other employee
more than, the cost of their insurance. Determine the
cost of the insurance, for this purpose, as explained
under Coverage over the limit, later.
Group-term life insurance doesn't include the following
insurance.
•
Insurance that doesn't provide general death benefits,
such as travel insurance or a policy providing only ac-
cidental death benefits.
•
Life insurance on the life of your employee's spouse or
dependent. However, you may be able to exclude the
cost of this insurance from the employee's wages as a
de minimis benefit. See De Minimis (Minimal) Bene-
fits, earlier in this section.
•
Insurance provided under a policy that provides a per-
manent benefit (an economic value that extends be-
yond 1 policy year, such as paid-up or cash-surrender
value), unless certain requirements are met. See Reg-
ulations section 1.79-1 for details.
Employee. For this exclusion, treat the following individ-
uals as employees.
1. A current common-law employee.
2. A full-time life insurance agent who is a current statu-
tory employee.
3. An individual who was formerly your employee under
(1) or (2).
4. A leased employee who has provided services to you
on a substantially full-time basis for at least a year if
the services are performed under your primary direc-
tion or control.
Exception for S corporation shareholders. Don't
treat a 2% shareholder of an S corporation as an em-
ployee of the corporation for this purpose. A 2%
shareholder is someone who directly or indirectly owns (at
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any time during the year) more than 2% of the corpora-
tion's stock or stock with more than 2% of the voting
power. Treat a 2% shareholder as you would a partner in a
partnership for fringe benefit purposes, but don't treat the
benefit as a reduction in distributions to the 2% share-
holder. For more information, see Revenue Ruling 91-26,
1991-1 C.B. 184.
The 10-employee rule. Generally, life insurance isn't
group-term life insurance unless you provide it at some
time during the calendar year to at least 10 full-time em-
ployees.
For this rule and the first exception discussed next,
count employees who choose not to receive the insurance
as if they do receive insurance, unless, to receive it, they
must contribute to the cost of benefits other than the
group-term life insurance. For example, count an em-
ployee who could receive insurance by paying part of the
cost, even if that employee chooses not to receive it. How-
ever, don't count an employee who chooses not to receive
insurance if the employee must pay part or all of the cost
of permanent benefits in order to obtain group-term life in-
surance. A permanent benefit is an economic value ex-
tending beyond 1 policy year (for example, a paid-up or
cash-surrender value) that is provided under a life insur-
ance policy.
Exceptions. Even if you don't meet the 10-employee
rule, two exceptions allow you to treat insurance as
group-term life insurance.
Under the first exception, you don't have to meet the
10-employee rule if all the following conditions are met.
1. If evidence that the employee is insurable is required,
it is limited to a medical questionnaire (completed by
the employee) that doesn't require a physical.
2. You provide the insurance to all your full-time employ-
ees or, if the insurer requires the evidence mentioned
in (1), to all full-time employees who provide evidence
the insurer accepts.
3. You figure the coverage based on either a uniform
percentage of pay or the insurer's coverage brackets
that meet certain requirements. See Regulations sec-
tion 1.79-1 for details.
Under the second exception, you don't have to meet
the 10-employee rule if all the following conditions are
met.
•
You provide the insurance under a common plan cov-
ering your employees and the employees of at least
one other employer who isn't related to you.
•
The insurance is restricted to, but mandatory for, all
your employees who belong to, or are represented by,
an organization (such as a union) that carries on sub-
stantial activities besides obtaining insurance.
•
Evidence of whether an employee is insurable doesn't
affect an employee's eligibility for insurance or the
amount of insurance that employee gets.
To apply either exception, don't consider employees
who were denied insurance for any of the following rea-
sons.
•
They were 65 or older.
•
They customarily work 20 hours or less a week or 5
months or less in a calendar year.
•
They haven't been employed for the waiting period
given in the policy. This waiting period can't be more
than 6 months.
Exclusion from wages. You can generally exclude the
cost of up to $50,000 of group-term life insurance cover-
age from the wages of an insured employee. You can ex-
clude the same amount from the employee's wages when
figuring social security and Medicare taxes. In addition,
you don't have to withhold federal income tax or pay FUTA
tax on any group-term life insurance you provide to an em-
ployee.
Coverage over the limit. You must include in your
employee's wages the cost of group-term life insurance
beyond $50,000 worth of coverage, reduced by the
amount the employee paid toward the insurance. Report it
as wages in boxes 1, 3, and 5 of the employee's Form
W-2. Also, show it in box 12 with code C. The amount is
subject to social security and Medicare taxes, and you
may, at your option, withhold federal income tax.
Figure the monthly cost of the insurance to include in
the employee's wages by multiplying the number of thou-
sands of dollars of all insurance coverage over $50,000
(figured to the nearest $100) by the cost shown in Ta-
ble 2-2. For all coverage provided within the calendar year,
use the employee's age on the last day of the employee's
tax year. You must prorate the cost from the table if less
than a full month of coverage is involved.
Table 2-2. Cost Per $1,000 of Protection for
1 Month
Age Cost
Under 25 ................................ $ 0.05
25 through 29 .............................. 0.06
30 through 34 ............................. 0.08
35 through 39 ............................. 0.09
40 through 44 ............................. 0.10
45 through 49 ............................. 0.15
50 through 54 ............................. 0.23
55 through 59 ............................. 0.43
60 through 64 ............................. 0.66
65 through 69 ............................. 1.27
70 and older .............................. 2.06
You figure the total cost to include in the employee's
wages by multiplying the monthly cost by the number of
months' coverage at that cost.
Example. Tom's employer provides Tom with
group-term life insurance coverage of $200,000. Tom is 45
years old, isn't a key employee, and pays $100 per year
toward the cost of the insurance. Tom's employer must in-
clude $170 in Tom’s wages. The $200,000 of insurance
coverage is reduced by $50,000. The yearly cost of
$150,000 of coverage is $270 ($0.15 x 150 x 12), and is
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reduced by the $100 Tom pays for the insurance. The em-
ployer includes $170 in boxes 1, 3, and 5 of Tom's Form
W-2. The employer also enters $170 in box 12 with code
C.
Coverage for dependents. Group-term life insurance
coverage paid by the employer for the spouse or depend-
ents of an employee may be excludable from income as a
de minimis fringe benefit if the face amount isn't more than
$2,000. If the face amount is greater than $2,000, the de-
pendent coverage may be excludable from income as a
de minimis fringe benefit if the excess (if any) of the cost of
insurance over the amount the employee paid for it on an
after-tax basis is so small that accounting for it is unrea-
sonable or administratively impracticable.
Former employees. When group-term life insurance
over $50,000 is provided to an employee (including retir-
ees) after their termination, the employee share of social
security and Medicare taxes on that period of coverage is
paid by the former employee with their tax return and isn't
collected by the employer. You’re not required to collect
those taxes. You must, however, pay the employer share
of social security and Medicare taxes. Use Table 2-2 to
determine the amount of additional income that is subject
to social security and Medicare taxes for coverage provi-
ded after separation from service. Report the uncollected
amounts separately in box 12 of Form W-2 using codes M
and N. See the General Instructions for Forms W-2 and
W-3 and the instructions for your employment tax return.
Exception for key employees. Generally, if your
group-term life insurance plan favors key employees as to
participation or benefits, you must include the entire cost
of the insurance in your key employees' wages. This ex-
ception generally doesn't apply to church plans. When fig-
uring social security and Medicare taxes, you must also in-
clude the entire cost in the employees' wages. Include the
cost in boxes 1, 3, and 5 of Form W-2. However, you don't
have to withhold federal income tax or pay FUTA tax on
the cost of any group-term life insurance you provide to an
employee.
For this purpose, the cost of the insurance is the
greater of the following amounts.
•
The premiums you pay for the employee's insurance.
See Regulations section 1.79-4T(Q&A 6) for more in-
formation.
•
The cost you figure using Table 2-2.
For this exclusion, a key employee during 2024 is an
employee or former employee who is one of the following
individuals. See section 416(i) of the Internal Revenue
Code for more information.
1. An officer having annual pay of more than $220,000.
2. An individual who for 2024 is either of the following.
a. A 5% owner of your business.
b. A 1% owner of your business whose annual pay is
more than $150,000.
A former employee who was a key employee upon re-
tirement or separation from service is also a key em-
ployee.
Your plan doesn't favor key employees as to participa-
tion if at least one of the following is true.
•
It benefits at least 70% of your employees.
•
At least 85% of the participating employees aren't key
employees.
•
It benefits employees who qualify under a set of rules
you set up that don't favor key employees.
Your plan meets this participation test if it is part of a
cafeteria plan (discussed earlier in section 1) and it meets
the participation test for those plans.
When applying this test, don't consider employees
who:
•
Have not completed 3 years of service;
•
Are part time or seasonal;
•
Are nonresident aliens who receive no U.S. source
earned income from you; or
•
Aren’t included in the plan but are in a unit of employ-
ees covered by a collective bargaining agreement, if
the benefits provided under the plan were the subject
of good-faith bargaining between you and employee
representatives.
Your plan doesn't favor key employees as to benefits if
all benefits available to participating key employees are
also available to all other participating employees. Your
plan doesn't favor key employees just because the
amount of insurance you provide to your employees is uni-
formly related to their pay.
S corporation shareholders. Because you can't
treat a 2% shareholder of an S corporation as an em-
ployee for this exclusion, you must include the cost of all
group-term life insurance coverage you provide the 2%
shareholder in their wages. When figuring social security
and Medicare taxes, you must also include the cost of this
coverage in the 2% shareholder's wages. Include the cost
in boxes 1, 3, and 5 of Form W-2. However, you don't have
to withhold federal income tax or pay FUTA tax on the cost
of any group-term life insurance coverage you provide to
the 2% shareholder.
Health Savings Accounts (HSAs)
An HSA is an account owned by a qualified individual who
is generally your employee or former employee. Any con-
tributions that you make to an HSA become the employ-
ee's property and can't be withdrawn by you. Contribu-
tions to the account are used to pay current or future
medical expenses of the account owner, their spouse, and
any qualified dependent. The medical expenses must not
be reimbursable by insurance or other sources and their
payment from HSA funds (distribution) won't give rise to a
medical expense deduction on the individual's federal in-
come tax return.
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Eligibility. A qualified individual must be covered by a
High Deductible Health Plan (HDHP) and not be covered
by other health insurance except for permitted insurance
listed under section 223(c)(3) or insurance for accidents,
disability, dental care, vision care, long-term care, or (in
the case of months beginning after March 31, 2022, and
before January 1, 2023, and plan years beginning on or
before December 31, 2021, or after December 31, 2022,
and before January 1, 2025) telehealth and other remote
care. For calendar year 2024, a qualifying HDHP must
have a deductible of at least $1,600 for self-only coverage
or $3,200 for family coverage and must limit annual
out-of-pocket expenses of the beneficiary to $8,050 for
self-only coverage and $16,100 for family coverage.
There are no income limits that restrict an individual's
eligibility to contribute to an HSA nor is there a require-
ment that the account owner have earned income to make
a contribution.
Exceptions. An individual isn't a qualified individual if
they can be claimed as a dependent on another person's
tax return. Also, an employee's participation in a health
FSA or HRA generally disqualifies the individual (and em-
ployer) from making contributions to their HSA. However,
an individual may qualify to participate in an HSA if they
are participating in only a limited-purpose FSA or HRA or
a post-deductible FSA. For more information, see Other
employee health plans in Pub. 969.
Employer contributions. Up to specified dollar limits,
cash contributions to the HSA of a qualified individual (de-
termined monthly) are exempt from federal income tax
withholding, social security tax, Medicare tax, and FUTA
tax if you reasonably believe that the employee can ex-
clude the benefits from gross income. For 2024, you can
contribute up to $4,150 for self-only coverage under an
HDHP or $8,300 for family coverage under an HDHP to a
qualified individual's HSA.
The contribution amounts listed above are increased by
$1,000 for a qualified individual who is age 55 or older at
any time during the year. For two qualified individuals who
are married to each other and who are each age 55 or
older at any time during the year, each spouse's contribu-
tion limit is increased by $1,000, provided each spouse
has a separate HSA. No contributions can be made to an
individual's HSA after they become enrolled in Medicare
Part A or Part B.
Nondiscrimination rules. Your contribution amount to
an employee's HSA must be comparable for all employ-
ees who have comparable coverage during the same pe-
riod. Otherwise, there will be an excise tax equal to 35% of
the amount you contributed to all employees' HSAs.
For guidance on employer comparable contributions to
HSAs under section 4980G in instances where an em-
ployee hasn't established an HSA by December 31 and in
instances where an employer accelerates contributions for
the calendar year for employees who have incurred quali-
fied medical expenses, see Regulations section
54.4980G-4.
Exception. The Tax Relief and Health Care Act of
2006 allows employers to make larger HSA contributions
for a nonhighly compensated employee than for a highly
compensated employee. A highly compensated employee
for 2024 is an employee who meets either of the following
tests.
1. The employee was a 5% owner at any time during the
year or the preceding year.
2. The employee received more than $150,000 in pay for
the preceding year.
You can choose to ignore test (2) if the employee wasn't
also in the top 20% of employees when ranked by pay for
the preceding year.
Partnerships and S corporations. Partners and 2%
shareholders of an S corporation aren't eligible for salary
reduction (pre-tax) contributions to an HSA. Employer
contributions to the HSA of a bona fide partner or 2%
shareholder are treated as distributions or guaranteed
payments, as determined by the facts and circumstances.
For more information, see Notice 2005-8, 2005-4 I.R.B.
368, available at IRS.gov/irb/2005-04_IRB#NOT-2005-8.
Cafeteria plans. You may contribute to an employee's
HSA using a cafeteria plan and your contributions aren't
subject to the statutory comparability rules. However, caf-
eteria plan nondiscrimination rules still apply. For example,
contributions under a cafeteria plan to employee HSAs
can't be greater for higher-paid employees than they are
for lower-paid employees. Contributions that favor
lower-paid employees aren't prohibited.
Reporting requirements. You must report your contri-
butions to an employee's HSA in box 12 of Form W-2 us-
ing code W. The trustee or custodian of the HSA, gener-
ally a bank or insurance company, reports distributions
from the HSA using Form 1099-SA.
More information. For more information about HSAs,
see Pub. 969.
Lodging on Your Business Premises
You can exclude the value of lodging you furnish to an em-
ployee from the employee's wages if it meets the following
tests.
•
It is furnished on your business premises.
•
It is furnished for your convenience.
•
The employee must accept it as a condition of em-
ployment.
Different tests may apply to lodging furnished by educa-
tional institutions. See section 119(d) of the Internal Reve-
nue Code for details.
If you allow your employee to choose to receive addi-
tional pay instead of lodging, then the lodging, if chosen,
isn’t excluded. The exclusion also doesn't apply to cash
allowances for lodging.
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On your business premises. For this exclusion, your
business premises is generally your employee's place of
work. For example, if you're a household employer, then
lodging furnished in your home to a household employee
would be considered lodging furnished on your business
premises. For special rules that apply to lodging furnished
in a camp located in a foreign country, see section 119(c)
of the Internal Revenue Code and its regulations.
For your convenience. Whether or not you furnish lodg-
ing for your convenience as an employer depends on all
the facts and circumstances. You furnish the lodging to
your employee for your convenience if you do this for a
substantial business reason other than to provide the em-
ployee with additional pay. This is true even if a law or an
employment contract provides that the lodging is fur-
nished as pay. However, a written statement that the lodg-
ing is furnished for your convenience isn't sufficient.
Condition of employment. Lodging meets this test if
you require your employees to accept the lodging be-
cause they need to live on your business premises to be
able to properly perform their duties. Examples include
employees who must be available at all times and employ-
ees who couldn't perform their required duties without be-
ing furnished the lodging.
It doesn't matter whether you must furnish the lodging
as pay under the terms of an employment contract or a
law fixing the terms of employment.
Example of qualifying lodging. You employ Sam at
a construction project at a remote job site in Alaska. Due
to the inaccessibility of facilities for the employees who are
working at the job site to obtain lodging and the prevailing
weather conditions, you furnish lodging to your employees
at the construction site in order to carry on the construc-
tion project. You require that your employees accept the
lodging as a condition of their employment. You may ex-
clude the lodging that you provide from Sam's wages. Ad-
ditionally, because sufficient eating facilities aren’t availa-
ble near your place of employment, you may also exclude
meals you provide to Sam from his wages, as discussed in
Proper meals not otherwise available under Meals on Your
Business Premises, later in this section.
Example of nonqualifying lodging. A hospital gives
Joan, an employee of the hospital, the choice of living at
the hospital free of charge or living elsewhere and receiv-
ing a cash allowance in addition to Joan’s regular salary. If
Joan chooses to live at the hospital, the hospital can't ex-
clude the value of the lodging from her wages because
she isn't required to live at the hospital to properly perform
the duties of her employment.
S corporation shareholders. For this exclusion, don't
treat a 2% shareholder of an S corporation as an em-
ployee of the corporation. A 2% shareholder is someone
who directly or indirectly owns (at any time during the
year) more than 2% of the corporation's stock or stock
with more than 2% of the voting power. Treat a 2% share-
holder as you would a partner in a partnership for fringe
benefit purposes, but don't treat the benefit as a reduction
in distributions to the 2% shareholder. For more informa-
tion, see Revenue Ruling 91-26, 1991-1 C.B. 184.
Meals
This section discusses the exclusion rules that apply to de
minimis meals and meals on your business premises.
De Minimis Meals
You can exclude any occasional meal you provide to an
employee if it has so little value (taking into account how
frequently you provide meals to your employees) that ac-
counting for it would be unreasonable or administratively
impracticable. The exclusion applies, for example, to the
following items.
•
Coffee, doughnuts, or soft drinks.
•
Occasional meals or meal money provided to enable
an employee to work overtime. However, the exclusion
doesn't apply to meal money figured on the basis of
hours worked (for example, $2.00 per hour for each
hour over 8 hours), or meals or meal money provided
on a regular or routine basis.
•
Occasional parties or picnics for employees and their
guests.
Employee. For this exclusion, treat any recipient of a de
minimis meal as an employee.
Employer-operated eating facility for employees. The
de minimis meals exclusion also applies to meals you pro-
vide at an employer-operated eating facility for employees
if the annual revenue from the facility equals or exceeds
the direct operating costs of the facility. Direct operating
costs include the cost of food and beverages, and labor
costs (including employment taxes) of employees whose
services relating to the facility are performed primarily on
the premises of the eating facility. Therefore, for example,
the labor costs attributable to cooks and waitstaff are in-
cluded in direct operating costs, but the labor cost attribut-
able to a manager of an eating facility whose services
aren't primarily performed on the premises of the eating
facility aren't included in direct operating costs.
For this purpose, your revenue from providing a meal is
considered equal to the facility's direct operating costs to
provide that meal if its value can be excluded from an em-
ployee's wages, as explained under Meals on Your Busi-
ness Premises, later. If you provide free or discounted
meals to volunteers at a hospital and you can reasonably
determine the number of meals you provide, then you may
disregard these costs and revenues. If you charge nonem-
ployees a greater amount than employees, then you must
disregard all costs and revenues attributable to these non-
employees.
An employer-operated eating facility for employees is
an eating facility that meets all the following conditions.
•
You own or lease the facility.
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•
You operate the facility. You’re considered to operate
the eating facility if you have a contract with another to
operate it.
•
The facility is on or near your business premises.
•
You provide meals (food, drinks, and related services)
at the facility during, or immediately before or after, the
employee's workday.
Exclusion from wages. You can generally exclude the
value of de minimis meals you provide to an employee
from the employee's wages.
Exception for highly compensated employees.
You can't exclude from the wages of a highly compensa-
ted employee the value of a meal provided at an em-
ployer-operated eating facility that isn't available on the
same terms to one of the following groups.
•
All of your employees.
•
A group of employees defined under a reasonable
classification you set up that doesn't favor highly com-
pensated employees.
For this exclusion, a highly compensated employee for
2024 is an employee who meets either of the following
tests.
1. The employee was a 5% owner at any time during the
year or the preceding year.
2. The employee received more than $150,000 in pay for
the preceding year.
You can choose to ignore test (2) if the employee wasn't
also in the top 20% of employees when ranked by pay for
the preceding year.
Section 13304 of P.L. 115-97 changed the rules
for the deduction of food or beverage expenses
that are excludable from employee income as a
de minimis fringe benefit. For amounts incurred or paid af-
ter 2017, the 50% limit on deductions for food or beverage
expenses also applies to food or beverage expenses ex-
cludable from employee income as a de minimis fringe
benefit. However, food or beverage expenses related to
employee recreation, such as holiday parties or annual
picnics, aren't subject to the 50% limit on deductions when
made primarily for the benefit of your employees other
than employees who are officers, shareholders or other
owners who own a 10% or greater interest in your busi-
ness, or other highly compensated employees. For more
information, see Regulations section 1.274-12. While your
business deduction may be limited, the fringe benefit ex-
clusion rules still apply and the de minimis fringe benefits
may be excluded from your employee's wages, as dis-
cussed earlier.
Meals on Your Business Premises
You can exclude the value of meals you furnish to an em-
ployee from the employee's wages if they meet the follow-
ing tests.
•
They are furnished on your business premises.
TIP
•
They are furnished for your convenience.
If you allow your employee to choose to receive addi-
tional pay instead of meals, then the meals, if chosen,
aren’t excluded. The exclusion also doesn't apply to cash
allowances for meals.
On your business premises. Generally, for this exclu-
sion, the employee's place of work is your business prem-
ises.
For your convenience. Whether you furnish meals for
your convenience as an employer depends on all the facts
and circumstances. You furnish the meals to your em-
ployee for your convenience if you do this for a substantial
business reason other than to provide the employee with
additional pay. This is true even if a law or an employment
contract provides that the meals are furnished as pay.
However, a written statement that the meals are furnished
for your convenience isn't sufficient.
Meals excluded for all employees if excluded for
more than half. If more than half of your employees who
are furnished meals on your business premises are fur-
nished the meals for your convenience, you can treat all
meals you furnish to employees on your business prem-
ises as furnished for your convenience.
Food service employees. Meals you furnish to a res-
taurant or other food service employee during, or immedi-
ately before or after, the employee's working hours are fur-
nished for your convenience. For example, if a waitstaff
works during the breakfast and lunch periods, you can ex-
clude from their wages the value of the breakfast and
lunch you furnish in your restaurant for each day they
work.
Example. You operate a restaurant business. You fur-
nish your employee, Carol, who is a server working 7 a.m.
to 4 p.m., two meals during each workday. You encourage
but don't require Carol to have breakfast on the business
premises before starting work. Carol must have lunch on
the premises. Because Carol is a food service employee
and works during the normal breakfast and lunch periods,
you can exclude from her wages the value of her breakfast
and lunch.
If you also allow Carol to have meals on your business
premises without charge on Carol’s days off, you can't ex-
clude the value of those meals from Carol’s wages.
Employees available for emergency calls. Meals
you furnish during working hours so an employee will be
available for emergency calls during the meal period are
furnished for your convenience. You must be able to show
these emergency calls have occurred or can reasonably
be expected to occur, and that the calls have resulted, or
will result, in you calling on your employees to perform
their jobs during their meal period.
Example. A hospital maintains a cafeteria on its prem-
ises where all of its 230 employees may get meals at no
charge during their working hours. The hospital must have
120 of its employees available for emergencies. Each of
these 120 employees is, at times, called upon to perform
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services during the meal period. Although the hospital
doesn't require these employees to remain on the prem-
ises, they rarely leave the hospital during their meal pe-
riod. Since the hospital furnishes meals on its premises to
its employees so that more than half of them are available
for emergency calls during meal periods, the hospital can
exclude the value of these meals from the wages of all of
its employees.
Short meal periods. Meals you furnish during work-
ing hours are furnished for your convenience if the nature
of your business (not merely a preference) restricts an em-
ployee to a short meal period (such as 30 or 45 minutes)
and the employee can't be expected to eat elsewhere in
such a short time. For example, meals can qualify for this
treatment if your peak workload occurs during the normal
lunch hour. However, they don't qualify if the reason for the
short meal period is to allow the employee to leave earlier
in the day.
Example. Frank is a bank teller who works from 9
a.m. to 5 p.m. The bank furnishes Frank’s lunch without
charge in a cafeteria the bank maintains on its premises.
The bank furnishes these meals to Frank to limit his lunch
period to 30 minutes, because the bank's peak workload
occurs during the normal lunch period. If Frank got lunch
elsewhere, it would take him much longer than 30 minutes
and the bank strictly enforces the time limit. The bank can
exclude the value of these meals from Frank's wages.
Proper meals not otherwise available. Meals you
furnish during working hours are furnished for your con-
venience if the employee couldn't otherwise get proper
meals within a reasonable period of time. For example,
meals can qualify for this treatment if there are insufficient
eating facilities near the place of employment. For an ex-
ample of this, see Example of qualifying lodging, earlier in
this section.
Meals after work hours. Generally, meals furnished
before or after the working hours of an employee aren’t
considered as furnished for your convenience. However,
meals you furnish to an employee immediately after work-
ing hours are furnished for your convenience if you would
have furnished them during working hours for a substan-
tial nonpay business reason but, because of the work du-
ties, they weren't obtained during working hours.
Meals you furnish to promote goodwill, boost mo-
rale, or attract prospective employees. Meals you fur-
nish to promote goodwill, boost morale, or attract prospec-
tive employees aren't considered furnished for your
convenience. However, you may be able to exclude their
value, as discussed under De Minimis Meals, earlier.
Meals furnished on nonworkdays or with lodging.
You generally can't exclude from an employee's wages the
value of meals you furnish on a day when the employee
isn't working. However, you can exclude these meals if
they are furnished with lodging that is excluded from the
employee's wages. See Lodging on Your Business Prem-
ises, earlier in this section.
Meals with a charge. The fact that you charge for the
meals and that your employees may accept or decline the
meals isn't taken into account in determining whether or
not meals are furnished for your convenience.
S corporation shareholders. For this exclusion, don't
treat a 2% shareholder of an S corporation as an em-
ployee of the corporation. A 2% shareholder is someone
who directly or indirectly owns (at any time during the
year) more than 2% of the corporation's stock or stock
with more than 2% of the voting power. Treat a 2% share-
holder as you would a partner in a partnership for fringe
benefit purposes, but don't treat the benefit as a reduction
in distributions to the 2% shareholder. For more informa-
tion, see Revenue Ruling 91-26, 1991-1 C.B. 184.
No-Additional-Cost Services
This exclusion applies to a service you provide to an em-
ployee if it doesn't cause you to incur any substantial addi-
tional costs. The service must be offered to customers in
the ordinary course of the line of business in which the
employee performs substantial services.
No-additional-cost services are excess capacity serv-
ices, such as airline, bus, or train tickets; hotel rooms; or
telephone services provided free, at a reduced price, or
through a cash rebate to employees working in those lines
of business. Services that aren't eligible for treatment as
no-additional-cost services are non-excess capacity serv-
ices, such as the facilitation by a stock brokerage firm of
the purchase of stock by employees. These services may,
however, be eligible for a qualified employee discount of
up to 20% of the value of the service provided. See Em-
ployee Discounts, earlier.
Substantial additional costs. To determine whether
you incur substantial additional costs to provide a service
to an employee, count any lost revenue as a cost. Don't
reduce the costs you incur by any amount the employee
pays for the service. You’re considered to incur substantial
additional costs if you or your employees spend a sub-
stantial amount of time in providing the service, even if the
time spent would otherwise be idle or if the services are
provided outside normal business hours.
Example. A commercial airline allows its employees
to take personal flights on the airline at no charge and re-
ceive reserved seating. Because the employer gives up
potential revenue by allowing the employees to reserve
seats, employees receiving such free flights aren’t eligible
for the no-additional-cost exclusion.
Reciprocal agreements. A no-additional-cost service
provided to your employee by an unrelated employer may
qualify as a no-additional-cost service if all the following
tests are met.
•
The service is the same type of service generally pro-
vided to customers in both the line of business in
which the employee works and the line of business in
which the service is provided.
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•
You and the employer providing the service have a
written reciprocal agreement under which a group of
employees of each employer, all of whom perform
substantial services in the same line of business, may
receive no-additional-cost services from the other em-
ployer.
•
Neither you nor the other employer incurs any sub-
stantial additional cost (including lost revenue) either
in providing the service or because of the written
agreement.
Employee. For this exclusion, treat the following individ-
uals as employees.
1. A current employee.
2. A former employee who retired or left on disability.
3. A surviving spouse of an individual who died while an
employee.
4. A surviving spouse of a former employee who retired
or left on disability.
5. A leased employee who has provided services to you
on a substantially full-time basis for at least a year if
the services are performed under your primary direc-
tion or control.
6. A partner who performs services for a partnership.
Treat services you provide to the spouse or dependent
child of an employee as provided to the employee. For this
fringe benefit, dependent child is a child or stepchild who
is the employee's dependent or who, if both parents are
deceased, hasn't attained the age of 25. Treat a child of
divorced parents as a dependent of both parents.
Treat any use of air transportation by the parent of an
employee as use by the employee. This rule doesn't apply
to use by the parent of a person considered an employee
because of item (3) or (4) above.
Exclusion from wages. You can generally exclude the
value of a no-additional-cost service you provide to an
employee from the employee's wages.
Exception for highly compensated employees.
You can't exclude from the wages of a highly compensa-
ted employee the value of a no-additional-cost service
that isn't available on the same terms to one of the follow-
ing groups.
•
All of your employees.
•
A group of employees defined under a reasonable
classification you set up that doesn't favor highly com-
pensated employees.
For this exclusion, a highly compensated employee for
2024 is an employee who meets either of the following
tests.
1. The employee was a 5% owner at any time during the
year or the preceding year.
2. The employee received more than $150,000 in pay for
the preceding year.
You can choose to ignore test (2) if the employee wasn't
also in the top 20% of employees when ranked by pay for
the preceding year.
Retirement Planning Services
You may exclude from an employee's wages the value of
any retirement planning advice or information you provide
to your employee or their spouse if you maintain a quali-
fied retirement plan. A qualified retirement plan includes a
plan, contract, pension, or account described in section
219(g)(5) of the Internal Revenue Code. In addition to em-
ployer plan advice and information, the services provided
may include general advice and information on retirement.
However, the exclusion doesn't apply to services for tax
preparation, accounting, legal, or brokerage services. You
can't exclude from the wages of a highly compensated
employee retirement planning services that aren't availa-
ble on the same terms to each member of a group of em-
ployees normally provided education and information
about the employer's qualified retirement plan.
Transportation (Commuting) Benefits
This section discusses exclusion rules that apply to bene-
fits you provide to your employees for their personal trans-
portation, such as commuting to and from work. These
rules apply to the following transportation benefits.
•
De minimis transportation benefits.
•
Qualified transportation benefits.
Special rules that apply to demonstrator cars and qualified
nonpersonal use vehicles are discussed under Working
Condition Benefits, later in this section.
De Minimis Transportation Benefits
You can exclude the value of any de minimis transporta-
tion benefit you provide to an employee from the employ-
ee's wages. A de minimis transportation benefit is any lo-
cal transportation benefit you provide to an employee if it
has so little value (taking into account how frequently you
provide transportation to your employees) that accounting
for it would be unreasonable or administratively impracti-
cable. For example, it applies to occasional local transpor-
tation fare you give an employee because the employee is
working overtime if the benefit is reasonable and isn't
based on hours worked. Local transportation fare provided
on a regular or routine basis doesn't qualify for this exclu-
sion.
A special rule allows you to exclude as a de minimis
benefit public transit passes, tokens, or fare cards you pro-
vide at a discount to defray your employee's commuting
costs on the public transit system if the discount doesn't
exceed $21 in any month. Similarly, you may also provide
a voucher or similar instrument that is exchangeable
solely for tokens, fare cards, or other instruments that ena-
ble your employee to use the public transit system if the
value of the vouchers and other instruments in any month
doesn't exceed $21. You may also reimburse your
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employee to cover the cost of commuting on a public
transit system, provided your employee doesn't receive
more than $21 in reimbursements for commuting costs in
any month. The reimbursement must be made under a
bona fide reimbursement arrangement, where you estab-
lish appropriate procedures for verifying on a periodic ba-
sis that your employee's use of public transportation for
commuting is consistent with the value of the benefit provi-
ded. The exclusion doesn't apply to the provision of any
benefit to defray public transit expenses incurred for per-
sonal travel other than commuting.
Employee. For this exclusion, treat any recipient of a de
minimis transportation benefit as an employee.
Qualified Transportation Benefits
This exclusion applies to the following benefits.
•
A ride in a commuter highway vehicle between the
employee's home and work place.
•
A transit pass.
•
Qualified parking.
You may provide an employee with any one or more of
these benefits at the same time.
Qualified transportation benefits can be provided di-
rectly by you or through a bona fide reimbursement ar-
rangement. A bona fide reimbursement arrangement re-
quires that the employee incur and substantiate expenses
for qualified transportation benefits before reimbursement.
However, cash reimbursements for transit passes qualify
only if a voucher or a similar item that the employee can
exchange only for a transit pass isn't readily available for
direct distribution by you to your employee. A voucher is
readily available for direct distribution only if an employer
can obtain it from a voucher provider that doesn't impose
fare media charges or other restrictions that effectively
prevent the employer from obtaining vouchers. See Regu-
lations section 1.132-9(b)(Q&A 16–19) for more informa-
tion.
Compensation reduction agreements. A compensa-
tion reduction agreement is a way to provide qualified
transportation benefits on a pre-tax basis by offering your
employees a choice between cash compensation and any
qualified transportation benefit. A compensation reduction
arrangement can be used with a bona fide reimbursement
arrangement. For each month, the amount of the compen-
sation reduction can't exceed the monthly limits for trans-
portation benefits described under Exclusion from wages,
later. For more information about providing qualified trans-
portation fringe benefits under a compensation reduction
agreement, see Regulations section 1.132-9(b)(Q&A 11–
15).
Commuter highway vehicle. A commuter highway vehi-
cle is any highway vehicle that seats at least 6 adults (not
including the driver). In addition, you must reasonably ex-
pect that at least 80% of the vehicle mileage will be for
transporting employees between their homes and work-
place with employees occupying at least one-half the vehi-
cle's seats (not including the driver's).
Transit pass. A transit pass is any pass, token, farecard,
voucher, or similar item entitling a person to ride, free of
charge or at a reduced rate, on one of the following.
•
Mass transit.
•
In a vehicle that seats at least 6 adults (not including
the driver) if a person in the business of transporting
persons for pay or hire operates it.
Mass transit may be publicly or privately operated and in-
cludes bus, rail, or ferry. For guidance on the use of smart
cards and debit cards to provide qualified transportation
fringes, see Revenue Ruling 2014-32, 2014-50 I.R.B. 917,
available at IRS.gov/irb/2014-50_IRB#RR-2014-32.
Qualified parking. Qualified parking is parking you pro-
vide to your employees on or near your business prem-
ises. It includes parking on or near the location from which
your employees commute to work using mass transit,
commuter highway vehicles, or carpools. It doesn't include
parking at or near your employee's home.
Qualified bicycle commuting reimbursement
suspended. Section 11047 of P.L. 115-97 sus-
pends the exclusion of qualified bicycle commut-
ing reimbursements from your employee's income for any
tax year beginning after 2017 and before 2026.
Employee. For this exclusion, treat the following individ-
uals as employees.
•
A current employee.
•
A leased employee who has provided services to you
on a substantially full-time basis for at least a year if
the services are performed under your primary direc-
tion or control.
A self-employed individual isn't an employee for quali-
fied transportation benefit purposes.
Exception for S corporation shareholders. Don't
treat a 2% shareholder of an S corporation as an em-
ployee of the corporation for this purpose. A 2% share-
holder is someone who directly or indirectly owns (at any
time during the year) more than 2% of the corporation's
stock or stock with more than 2% of the voting power.
Treat a 2% shareholder as you would a partner in a part-
nership for fringe benefit purposes, but don't treat the ben-
efit as a reduction in distributions to the 2% shareholder.
For more information, see Revenue Ruling 91-26, 1991-1
C.B. 184.
Relation to other fringe benefits. You can't exclude a
qualified transportation benefit you provide to an em-
ployee under the de minimis or working condition benefit
rules. However, if you provide a local transportation benefit
other than by transit pass or commuter highway vehicle, or
to a person other than an employee, you may be able to
exclude all or part of the benefit under other fringe benefit
rules (de minimis, working condition, etc.).
CAUTION
!
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Exclusion from wages. You can generally exclude the
value of transportation benefits that you provide to an em-
ployee during 2024 from the employee's wages up to the
following limits.
•
$315 per month for combined commuter highway ve-
hicle transportation and transit passes.
•
$315 per month for qualified parking.
Benefits more than the limit. If the value of a benefit
for any month is more than its limit, include in the employ-
ee's wages the amount over the limit minus any amount
the employee paid for the benefit. You can't exclude the
excess from the employee's wages as a de minimis trans-
portation benefit.
Qualified transportation benefits aren’t de-
ductible. Sections 274(a)(4) and 274(l) provide
that no deduction is allowed for qualified transpor-
tation benefits (whether provided directly by you, through
a bona fide reimbursement arrangement, or through a
compensation reduction agreement) incurred or paid after
2017. Also, no deduction is allowed for any expense incur-
red for providing any transportation, or any payment or re-
imbursement to your employee, in connection with travel
between your employee's residence and place of employ-
ment, except as necessary for ensuring the safety of your
employee or for qualified bicycle commuting reimburse-
ments, as described in section 132(f)(5)(F) (even though
the exclusion for qualified bicycle commuting reimburse-
ments is suspended, as discussed earlier). While you may
no longer deduct payments for qualified transportation
benefits, the fringe benefit exclusion rules still apply and
the payments may be excluded from your employee's wa-
ges, as discussed earlier. Although the value of a qualified
transportation fringe benefit is relevant in determining the
fringe benefit exclusion and whether the section 274(e)(2)
exception for expenses treated as compensation applies,
the deduction that is disallowed relates to the expense of
providing a qualified transportation fringe, not its value.
For more information, see Regulations sections 1.274-13
and 1.274-14.
More information. For more information on qualified
transportation benefits, including van pools, and how to
determine the value of parking, see Regulations section
1.132-9.
Tuition Reduction
An educational organization can exclude the value of a
qualified tuition reduction it provides to an employee from
the employee's wages.
A tuition reduction for undergraduate education gener-
ally qualifies for this exclusion if it is for the education of
one of the following individuals.
1. A current employee.
2. A former employee who retired or left on disability.
3. A surviving spouse of an individual who died while an
employee.
TIP
4. A surviving spouse of a former employee who retired
or left on disability.
5. A dependent child or spouse of any individual listed in
(1) through (4) above.
A tuition reduction for graduate education qualifies for
this exclusion only if it is for the education of a graduate
student who performs teaching or research activities for
the educational organization.
For more information on this exclusion, see Qualified
Tuition Reduction under Other Types of Educational Assis-
tance in chapter 1 of Pub. 970.
Working Condition Benefits
This exclusion applies to property and services you pro-
vide to an employee so that the employee can perform
their job. It applies to the extent the cost of the property or
services would be allowable as a business expense or de-
preciation expense deduction to the employee if they had
paid for it. The employee must meet any substantiation re-
quirements that apply to the deduction. Examples of work-
ing condition benefits include an employee's use of a
company car for business, an employer-provided cell
phone provided primarily for noncompensatory business
purposes (discussed earlier), and job-related education
provided to an employee.
This exclusion also applies to a cash payment you pro-
vide for an employee's expenses for a specific or prear-
ranged business activity if such expenses would other-
wise be allowable as a business expense or depreciation
expense deduction to the employee. You must require the
employee to verify that the payment is actually used for
those expenses and to return any unused part of the pay-
ment.
The exclusion doesn't apply to the following items.
•
A service or property provided under a flexible spend-
ing account in which you agree to provide the em-
ployee, over a time period, a certain level of unspeci-
fied noncash benefits with a predetermined cash
value.
•
A physical examination program you provide, even if
mandatory.
•
Any item to the extent the payment would be allowable
as a deduction to the employee as an expense for a
trade or business other than your trade or business.
For more information, see Regulations section
1.132-5(a)(2).
Employee. For this exclusion, treat the following individ-
uals as employees.
•
A current employee.
•
A partner who performs services for a partnership.
•
A director of your company.
•
An independent contractor who performs services for
you.
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Vehicle allocation rules. If you provide a car for an em-
ployee's use, the amount you can exclude as a working
condition benefit is the amount that would be allowable as
a deductible business expense if the employee paid for its
use. If the employee uses the car for both business and
personal use, the value of the working condition benefit is
the part determined to be for business use of the vehicle.
See Business use of your car next. Also, see the special
rules for certain demonstrator cars and qualified nonper-
sonal use vehicles discussed later.
Business use of your car. If you use your car exclu-
sively in your business, you can deduct car expenses. If
you use your car for both business and personal purpo-
ses, you must divide your expenses based on actual mile-
age. Generally, commuting expenses between your home
and your business location, within the area of your tax
home, are not deductible.
You can deduct actual car expenses, which include de-
preciation (or lease payments), gas and oil, tires, repairs,
tune-ups, insurance, and registration fees. Or, instead of
figuring the business part of these actual expenses, you
may be able to use the standard mileage rate to figure
your deduction. To find the standard mileage rate for
2024, go to IRS.gov/Tax-Professionals/ Standard-Mileage-
Rates.
If you are self-employed, you can also deduct the busi-
ness part of interest on your car loan, state and local per-
sonal property tax on the car, parking fees, and tolls,
whether or not you claim the standard mileage rate.
For more information on car expenses and the rules for
using the standard mileage rate, see Pub. 463.
Demonstrator cars. Generally, all of the use of a demon-
strator car by your full-time auto salesperson in the sales
area in which your sales office is located qualifies as a
working condition benefit if the use is primarily to facilitate
the services the salesperson provides for you and there
are substantial restrictions on personal use. For more in-
formation and the definition of “full-time auto salesperson,”
see Regulations section 1.132-5(o). For optional, simpli-
fied methods used to determine if full, partial, or no exclu-
sion of income to the employee for personal use of a dem-
onstrator car applies, see Revenue Procedure 2001-56.
You can find Revenue Procedure 2001-56 on page 590 of
Internal Revenue Bulletin 2001-51 at
IRS.gov/pub/irs-irbs/irb01-51.pdf.
Qualified nonpersonal use vehicles. All of an employ-
ee's use of a qualified nonpersonal use vehicle is a work-
ing condition benefit. A qualified nonpersonal use vehicle
is any vehicle the employee isn't likely to use more than
minimally for personal purposes because of its design.
Qualified nonpersonal use vehicles generally include all of
the following vehicles.
•
Clearly marked, through painted insignia or words, po-
lice, fire, and public safety vehicles, provided that any
personal use of the vehicle (other than commuting) is
prohibited by the governmental unit.
•
Unmarked vehicles used by law enforcement officers if
the use is officially authorized. Any personal use must
be authorized by the employer, and must be related to
law-enforcement functions, such as being able to re-
port directly from home to an emergency situation.
Use of an unmarked vehicle for vacation or recreation
trips can't qualify as an authorized use.
•
An ambulance or hearse used for its specific purpose.
•
Any vehicle designed to carry cargo with a loaded
gross vehicle weight over 14,000 pounds.
•
Delivery trucks with seating for the driver only, or the
driver plus a folding jump seat.
•
A passenger bus with a capacity of at least 20 pas-
sengers used for its specific purpose and school
buses. The working condition benefit is available only
for the driver, not for any passengers.
•
Tractors and other special-purpose farm vehicles.
•
Bucket trucks, cement mixers, combines, cranes and
derricks, dump trucks (including garbage trucks), flat-
bed trucks, forklifts, qualified moving vans, qualified
specialized utility repair trucks, and refrigerated trucks.
See Regulations section 1.274-5(k) for the definition of
qualified moving van and qualified specialized utility repair
truck.
Pickup trucks. A pickup truck with a loaded gross ve-
hicle weight of 14,000 pounds or less is a qualified non-
personal use vehicle if it has been specially modified so it
isn't likely to be used more than minimally for personal
purposes. For example, a pickup truck qualifies if it is
clearly marked with permanently affixed decals, special
painting, or other advertising associated with your trade,
business, or function and meets either of the following re-
quirements.
1. It is equipped with at least one of the following items.
a. A hydraulic lift gate.
b. Permanent tanks or drums.
c. Permanent side boards or panels that materially
raise the level of the sides of the truck bed.
d. Other heavy equipment (such as an electric gen-
erator, welder, boom, or crane used to tow auto-
mobiles and other vehicles).
2. It is used primarily to transport a particular type of
load (other than over the public highways) in a con-
struction, manufacturing, processing, farming, mining,
drilling, timbering, or other similar operation for which
it was specially designed or significantly modified.
Vans. A van with a loaded gross vehicle weight of
14,000 pounds or less is a qualified nonpersonal use vehi-
cle if it has been specially modified so it isn't likely to be
used more than minimally for personal purposes. For ex-
ample, a van qualifies if it is clearly marked with perma-
nently affixed decals, special painting, or other advertising
associated with your trade, business, or function and has
a seat for the driver only (or the driver and one other per-
son) and either of the following items.
•
Permanent shelving that fills most of the cargo area.
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•
An open cargo area and the van always carries mer-
chandise, material, or equipment used in your trade,
business, or function.
Education. Certain job-related education you provide to
an employee may qualify for exclusion as a working condi-
tion benefit. To qualify, the education must meet the same
requirements that would apply for determining whether the
employee could deduct the expenses had the employee
paid the expenses. Degree programs as a whole don't
necessarily qualify as a working condition benefit. Each
course in the program must be evaluated individually for
qualification as a working condition benefit. The education
must meet at least one of the following tests.
•
The education is required by the employer or by law
for the employee to keep their present salary, status,
or job. The required education must serve a bona fide
business purpose of the employer.
•
The education maintains or improves skills needed in
the job.
However, even if the education meets one or both of
the above tests, it isn't qualifying education if it:
•
Is needed to meet the minimum educational require-
ments of the employee's present trade or business, or
•
Is part of a program of study that will qualify the em-
ployee for a new trade or business.
Outplacement services. An employee's use of out-
placement services qualifies as a working condition bene-
fit if you provide the services to the employee on the basis
of need, you get a substantial business benefit from the
services distinct from the benefit you would get from the
payment of additional wages, and the employee is seek-
ing new employment in the same kind of trade or business
in which the employee is presently working. Substantial
business benefits include promoting a positive business
image, maintaining employee morale, and avoiding
wrongful termination suits.
Outplacement services don't qualify as a working con-
dition benefit if the employee can choose to receive cash
or taxable benefits in place of the services. If you maintain
a severance plan and permit employees to get outplace-
ment services with reduced severance pay, include in the
employee's wages the difference between the unreduced
severance and the reduced severance payments.
Product testing. The FMV of the use of consumer
goods, which are manufactured for sale to nonemployees,
for product testing and evaluation by your employee out-
side your workplace, qualifies as a working condition ben-
efit if all of the following conditions are met.
•
Consumer testing and evaluation of the product is an
ordinary and necessary business expense for you.
•
Business reasons necessitate that the testing and
evaluation must be performed off your business prem-
ises. For example, the testing and evaluation can't be
carried out adequately in your office or in laboratory
testing facilities.
•
You provide the product to your employee for purpo-
ses of testing and evaluation.
•
You provide the product to your employee for no lon-
ger than necessary to test and evaluate its perform-
ance, and (to the extent not finished) the product must
be returned to you at completion of the testing and
evaluation period.
•
You impose limitations on your employee’s use of the
product that significantly reduce the value of any per-
sonal benefit to your employee. This includes limiting
your employee’s ability to select among different mod-
els or varieties of the consumer product, and prohibit-
ing the use of the product by persons other than your
employee.
•
Your employee submits detailed reports to you on the
testing and evaluation.
The program won’t qualify if you don’t use and examine
the results of the detailed reports submitted by employees
within a reasonable period of time after expiration of the
testing period. Additionally, existence of one or more of
the following factors may also establish that the program
isn’t a bona fide product-testing program.
•
The program is in essence a leasing program under
which employees lease the consumer goods from you
for a fee.
•
The nature of the product and other considerations
are insufficient to justify the testing program.
•
The expense of the program outweighs the benefits to
be gained from testing and evaluation.
The program must also not be limited to only certain
classes of employees (such as highly compensated em-
ployees), unless you can show a business reason for pro-
viding the products only to specific employees. For exam-
ple, an automobile manufacturer may limit providing
automobiles for testing and evaluation to only their design
engineers and supervisory mechanics, as they can prop-
erly evaluate the automobiles.
Exclusion from wages. You can generally exclude the
value of a working condition benefit you provide to an em-
ployee from the employee's wages.
Exception for independent contractors who per-
form services for you. You can't exclude the use of
consumer goods you provide in a product-testing program
from the compensation you pay to an independent con-
tractor. You can't exclude the value of parking as a working
condition benefit, but you may be able to exclude it as a
de minimis fringe benefit. Transit passes provided to inde-
pendent contractors may be excluded as a working condi-
tion benefit if they meet the requirements of a working
condition benefit described earlier. However, personal
commuting expenses aren’t deductible as a business ex-
pense. Transit passes may also be excluded as a de mini-
mis fringe benefit. For more information on de minimis
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transportation benefits, see De Minimis Transportation
Benefits, earlier in this section.
Exception for company directors. You can't exclude
the value of the use of consumer goods you provide in a
product-testing program from the compensation you pay
to a director.
3. Fringe Benefit Valuation
Rules
This section discusses the rules you must use to deter-
mine the value of a fringe benefit you provide to an em-
ployee. You must determine the value of any benefit you
can't exclude under the rules in section 2 or for which the
amount you can exclude is limited. See Including taxable
benefits in pay in section 1.
In most cases, you must use the general valuation rule
to value a fringe benefit. However, you may be able to use
a special valuation rule to determine the value of certain
benefits.
This section doesn't discuss the special valuation rule
used to value meals provided at an employer-operated
eating facility for employees. For that rule, see Regulations
section 1.61-21(j). This section also doesn't discuss the
special valuation rules used to value the use of aircraft.
For those rules, see Regulations sections 1.61-21(g) and
(h). The aircraft fringe benefit valuation formulas are pub-
lished in the Internal Revenue Bulletin as Revenue Rulings
twice during the year. The formula applicable for the first
half of the year is usually available at the end of March.
The formula applicable for the second half of the year is
usually available at the end of September.
General Valuation Rule
You must use the general valuation rule to determine the
value of most fringe benefits. Under this rule, the value of
a fringe benefit is its FMV.
FMV. The FMV of a fringe benefit is the amount an em-
ployee would have to pay a third party in an arm's-length
transaction to buy or lease the benefit. Determine this
amount on the basis of all the facts and circumstances.
Neither the amount the employee considers to be the
value of the fringe benefit nor the cost you incur to provide
the benefit determines its FMV.
Employer-provided vehicles. In general, the FMV of an
employer-provided vehicle is the amount the employee
would have to pay a third party to lease the same or simi-
lar vehicle on the same or comparable terms in the geo-
graphic area where the employee uses the vehicle. A
comparable lease term would be the amount of time the
vehicle is available for the employee's use, such as a
1-year period.
Don't determine the FMV by multiplying a
cents-per-mile rate times the number of miles driven un-
less the employee can prove the vehicle could have been
leased on a cents-per-mile basis.
Cents-Per-Mile Rule
Under this rule, you determine the value of a vehicle you
provide to an employee for personal use by multiplying the
standard mileage rate by the total miles the employee
drives the vehicle for personal purposes. Personal use is
any use of the vehicle other than use in your trade or busi-
ness. This amount must be included in the employee's
wages or reimbursed by the employee. For 2024, the
standard mileage rate is 67 cents per mile.
You can use the cents-per-mile rule if either of the fol-
lowing requirements is met.
•
You reasonably expect the vehicle to be regularly used
in your trade or business throughout the calendar year
(or for a shorter period during which you own or lease
it).
•
The vehicle meets the mileage test.
Maximum automobile value. You can't use the
cents-per-mile rule for an automobile (including a
truck or van) if its value when you first make it
available to any employee for personal use in calendar
year 2024 is more than $62,000. For guidance related to
the impact of P.L. 115-97 on this rule, see Treasury Deci-
sion 9893, 2020-09 I.R.B. 449, available at IRS.gov/irb/
2020-09_IRB#TD-9893. If you and the employee own or
lease the automobile together, see Regulations sections
1.61-21(e)(1)(iii)(B) and (C).
Vehicle. For the cents-per-mile rule, a vehicle is any mo-
torized wheeled vehicle, including an automobile, manu-
factured primarily for use on public streets, roads, and
highways.
Regular use in your trade or business. Whether a ve-
hicle is regularly used in your trade or business is deter-
mined on the basis of all facts and circumstances. A vehi-
cle is considered regularly used in your trade or business
if one of the following safe harbor conditions is met.
•
At least 50% of the vehicle's total annual mileage is for
your trade or business.
•
You sponsor a commuting pool that generally uses the
vehicle each workday to drive at least three employ-
ees to and from work.
Infrequent business use of the vehicle, such as for oc-
casional trips to the airport or between your multiple busi-
ness premises, isn't regular use of the vehicle in your
trade or business.
Mileage test. A vehicle meets the mileage test for a cal-
endar year if both of the following requirements are met.
•
The vehicle is actually driven at least 10,000 miles
during the year. If you own or lease the vehicle only
CAUTION
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part of the year, reduce the 10,000-mile requirement
proportionately.
•
The vehicle is used during the year primarily by em-
ployees. Consider the vehicle used primarily by em-
ployees if they use it consistently for commuting. Don't
treat the use of the vehicle by another individual
whose use would be taxed to the employee as use by
the employee.
For example, if only one employee uses a vehicle dur-
ing the calendar year and that employee drives the vehicle
at least 10,000 miles in that year, the vehicle meets the
mileage test even if all miles driven by the employee are
personal.
Consistency requirements. If you use the
cents-per-mile rule, the following requirements apply.
•
You must begin using the cents-per-mile rule on the
first day you make the vehicle available to any em-
ployee for personal use. However, if you use the com-
muting rule (discussed later) when you first make the
vehicle available to any employee for personal use,
you can change to the cents-per-mile rule on the first
day for which you don't use the commuting rule.
•
You must use the cents-per-mile rule for all later years
in which you make the vehicle available to any em-
ployee and the vehicle qualifies, except that you can
use the commuting rule for any year during which use
of the vehicle qualifies under the commuting rule.
However, if the vehicle doesn't qualify for the
cents-per-mile rule during a later year, you can use for
that year and thereafter any other rule for which the
vehicle then qualifies.
•
You must continue to use the cents-per-mile rule if you
provide a replacement vehicle to the employee (and
the vehicle qualifies for the use of this rule) and your
primary reason for the replacement is to reduce fed-
eral taxes.
Items included in cents-per-mile rate. The
cents-per-mile rate includes the value of maintenance and
insurance for the vehicle. Don't reduce the rate by the
value of any service included in the rate that you didn't
provide. You can take into account the services actually
provided for the vehicle by using the general valuation
rule, earlier.
For miles driven in the United States, its territories,
Canada, and Mexico, the cents-per-mile rate includes the
value of fuel you provide. If you don't provide fuel, you can
reduce the rate by no more than 5.5 cents.
For special rules that apply to fuel you provide for miles
driven outside the United States, Canada, and Mexico,
see Regulations section 1.61-21(e)(3)(ii)(B).
The value of any other service you provide for a vehicle
isn't included in the cents-per-mile rate. Use the general
valuation rule to value these services.
Commuting Rule
Under this rule, you determine the value of a vehicle you
provide to an employee for commuting use by multiplying
each one-way commute (that is, from home to work or
from work to home) by $1.50. If more than one employee
commutes in the vehicle, this value applies to each em-
ployee. This amount must be included in the employee's
wages or reimbursed by the employee.
You can use the commuting rule if all the following re-
quirements are met.
•
You provide the vehicle to an employee for use in your
trade or business and, for bona fide noncompensatory
business reasons, you require the employee to com-
mute in the vehicle. You will be treated as if you had
met this requirement if the vehicle is generally used
each workday to carry at least three employees to and
from work in an employer-sponsored commuting pool.
•
You establish a written policy under which you don't al-
low the employee, nor any individual whose use would
be taxable to the employee, to use the vehicle for per-
sonal purposes other than for commuting or de mini-
mis personal use (such as a stop for a personal errand
on the way between a business delivery and the em-
ployee's home). Personal use of a vehicle is all use
that isn't for your trade or business.
•
The employee doesn't use the vehicle for personal
purposes other than commuting and de minimis per-
sonal use.
•
If this vehicle is an automobile (any four-wheeled vehi-
cle, such as a car, pickup truck, or van), the employee
who uses it for commuting isn't a control employee.
See Control employee, later.
Vehicle. For this rule, a vehicle is any motorized wheeled
vehicle (including an automobile) manufactured primarily
for use on public streets, roads, and highways.
Control employee. A control employee of a nongovern-
ment employer for 2024 is generally any of the following
employees.
•
A board- or shareholder-appointed, confirmed, or
elected officer whose pay is $135,000 or more.
•
A director.
•
An employee whose pay is $275,000 or more.
•
An employee who owns a 1% or more equity, capital,
or profits interest in your business.
A control employee for a government employer for 2024
is either of the following.
•
A government employee whose compensation is
equal to or exceeds Federal Government Executive
Level V. Go to the Office of Personnel Management
website at OPM.gov/policy-data-oversight/pay-leave/
salaries-wages for 2024 compensation information.
•
An elected official.
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Highly compensated employee alternative. In-
stead of using the preceding definition, you can choose to
define a control employee as any highly compensated em-
ployee. A highly compensated employee for 2024 is an
employee who meets either of the following tests.
1. The employee was a 5% owner at any time during the
year or the preceding year.
2. The employee received more than $150,000 in pay for
the preceding year.
You can choose to ignore test (2) if the employee wasn't
also in the top 20% of employees when ranked by pay for
the preceding year.
Lease Value Rule
Under this rule, you determine the value of an automobile
you provide to an employee by using its annual lease
value. For an automobile provided only part of the year,
use either its prorated annual lease value or its daily lease
value (discussed later).
If the automobile is used by the employee in your busi-
ness, you generally reduce the lease value by the amount
that is excluded from the employee's wages as a working
condition benefit (discussed earlier in section 2). In order
to do this, the employee must account to the employer for
the business use. This is done by substantiating the usage
(mileage, for example), the time and place of the travel,
and the business purpose of the travel. Written records
made at the time of each business use are the best evi-
dence. Any use of a company-provided vehicle that isn't
substantiated as business use is included in income. The
working condition benefit is the amount that would be an
allowable business expense deduction for the employee if
the employee paid for the use of the vehicle.
Automobile. For this rule, an automobile is any
four-wheeled vehicle (such as a car, pickup truck, or van)
manufactured primarily for use on public streets, roads,
and highways.
Consistency requirements. If you use the lease value
rule, the following requirements apply.
1. You must begin using this rule on the first day you
make the automobile available to any employee for
personal use. However, the following exceptions ap-
ply.
a. If you use the commuting rule (discussed earlier in
this section) when you first make the automobile
available to any employee for personal use, you
can change to the lease value rule on the first day
for which you don't use the commuting rule.
b. If you use the cents-per-mile rule (discussed ear-
lier in this section) when you first make the auto-
mobile available to any employee for personal use,
you can change to the lease value rule on the first
day on which the automobile no longer qualifies
for the cents-per-mile rule.
2. You must use this rule for all later years in which you
make the automobile available to any employee, ex-
cept that you can use the commuting rule for any year
during which use of the automobile qualifies.
3. You must continue to use this rule if you provide a re-
placement automobile to the employee and your pri-
mary reason for the replacement is to reduce federal
taxes.
Annual Lease Value
Generally, you figure the annual lease value of an automo-
bile as follows.
1. Determine the FMV of the automobile on the first date
it is available to any employee for personal use.
2. Using Table 3-1, read down column (1) until you come
to the dollar range within which the FMV of the auto-
mobile falls. Then read across to column (2) to find
the annual lease value.
3. Multiply the annual lease value by the percentage of
personal miles out of total miles driven by the em-
ployee.
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Table 3-1. Annual Lease Value Table
(1) Automobile FMV (2) Annual Lease
Value
$ 0 to 999 ........................ $ 600
1,000 to 1,999 .................... 850
2,000 to 2,999 .................... 1,100
3,000 to 3,999 .................... 1,350
4,000 to 4,999 .................... 1,600
5,000 to 5,999 .................... 1,850
6,000 to 6,999 .................... 2,100
7,000 to 7,999 .................... 2,350
8,000 to 8,999 .................... 2,600
9,000 to 9,999 .................... 2,850
10,000 to 10,999 ................... 3,100
11,000 to 11,999 ................... 3,350
12,000 to 12,999 ................... 3,600
13,000 to 13,999 ................... 3,850
14,000 to 14,999 ................... 4,100
15,000 to 15,999 ................... 4,350
16,000 to 16,999 ................... 4,600
17,000 to 17,999 ................... 4,850
18,000 to 18,999 ................... 5,100
19,000 to 19,999 ................... 5,350
20,000 to 20,999 ................... 5,600
21,000 to 21,999 ................... 5,850
22,000 to 22,999 ................... 6,100
23,000 to 23,999 ................... 6,350
24,000 to 24,999 ................... 6,600
25,000 to 25,999 ................... 6,850
26,000 to 27,999 ................... 7,250
28,000 to 29,999 ................... 7,750
30,000 to 31,999 ................... 8,250
32,000 to 33,999 ................... 8,750
34,000 to 35,999 ................... 9,250
36,000 to 37,999 ................... 9,750
38,000 to 39,999 ................... 10,250
40,000 to 41,999 ................... 10,750
42,000 to 43,999 ................... 11,250
44,000 to 45,999 ................... 11,750
46,000 to 47,999 ................... 12,250
48,000 to 49,999 ................... 12,750
50,000 to 51,999 ................... 13,250
52,000 to 53,999 ................... 13,750
54,000 to 55,999 ................... 14,250
56,000 to 57,999 ................... 14,750
58,000 to 59,999 ................... 15,250
For automobiles with an FMV of more than $59,999,
the annual lease value equals (0.25 × the FMV of the au-
tomobile) + $500.
FMV. The FMV of an automobile is the amount a person
would pay to buy it from a third party in an arm's-length
transaction in the area in which the automobile is bought
or leased. That amount includes all purchase expenses,
such as sales tax and title fees.
If you have 20 or more automobiles, see Regulations
section 1.61-21(d)(5)(v). If you and the employee own or
lease the automobile together, see Regulations section
1.61-21(d)(2)(ii).
You don't have to include the value of a telephone or
any specialized equipment added to, or carried in, the au-
tomobile if the equipment is necessary for your business.
However, include the value of specialized equipment if the
employee to whom the automobile is available uses the
specialized equipment in a trade or business other than
yours.
Neither the amount the employee considers to be the
value of the benefit nor your cost for either buying or leas-
ing the automobile determines its FMV. However, see
Safe-harbor value next.
Safe-harbor value. You may be able to use a
safe-harbor value as the FMV.
For an automobile you bought at arm's length, the
safe-harbor value is your cost, including sales tax, title,
and other purchase expenses. This method isn’t available
for an automobile you manufactured.
For an automobile you lease, you can use any of the
following as the safe-harbor value.
•
The manufacturer's invoice price (including options)
plus 4%.
•
The manufacturer's suggested retail price minus 8%
(including sales tax, title, and other expenses of pur-
chase).
•
The retail value of the automobile reported by a na-
tionally recognized pricing source if that retail value is
reasonable for the automobile.
Items included in annual lease value table. Each an-
nual lease value in the table includes the value of mainte-
nance and insurance for the automobile. Don't reduce the
annual lease value by the value of any of these services
that you didn't provide. For example, don't reduce the an-
nual lease value by the value of a maintenance service
contract or insurance you didn't provide. You can take into
account the services actually provided for the automobile
by using the general valuation rule discussed earlier.
Items not included. The annual lease value doesn't
include the value of fuel you provide to an employee for
personal use, regardless of whether you provide it, reim-
burse its cost, or have it charged to you. You must include
the value of the fuel separately in the employee's wages.
You can value fuel you provided at FMV or at 5.5 cents per
mile for all miles driven by the employee. However, you
can't value at 5.5 cents per mile fuel you provide for miles
driven outside the United States (including its territories),
Canada, and Mexico.
If you reimburse an employee for the cost of fuel, or
have it charged to you, you generally value the fuel at the
amount you reimburse, or the amount charged to you if it
was bought at arm's length.
If you have 20 or more automobiles, see Regulations
section 1.61-21(d)(3)(ii)(D).
If you provide any service other than maintenance and
insurance for an automobile, you must add the FMV of
that service to the annual lease value of the automobile to
figure the value of the benefit.
4-year lease term. The annual lease values in the table
are based on a 4-year lease term. These values will gen-
erally stay the same for the period that begins with the first
date you use this rule for the automobile and ends on De-
cember 31 of the fourth full calendar year following that
date.
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Figure the annual lease value for each later 4-year pe-
riod by determining the FMV of the automobile on January
1 of the first year of the later 4-year period and selecting
the amount in column (2) of the table that corresponds to
the appropriate dollar range in column (1).
Using the special accounting rule. If you use the
special accounting rule for fringe benefits discussed in
section 4, you can figure the annual lease value for each
later 4-year period at the beginning of the special account-
ing period that starts immediately before the January 1
date described in the previous paragraph.
For example, assume that you use the special account-
ing rule and that, beginning on November 1, 2023, the
special accounting period is November 1 to October 31.
You elected to use the lease value rule as of January 1,
2024. You can refigure the annual lease value on Novem-
ber 1, 2027, rather than on January 1, 2028.
Transferring an automobile from one employee to an-
other. Unless the primary purpose of the transfer is to re-
duce federal taxes, you can refigure the annual lease
value based on the FMV of the automobile on January 1
of the calendar year of transfer.
However, if you use the special accounting rule for
fringe benefits discussed in section 4, you can refigure the
annual lease value (based on the FMV of the automobile)
at the beginning of the special accounting period in which
the transfer occurs.
Prorated Annual Lease Value
If you provide an automobile to an employee for a continu-
ous period of 30 or more days but less than an entire cal-
endar year, you can prorate the annual lease value. Figure
the prorated annual lease value by multiplying the annual
lease value by a fraction, using the number of days of
availability as the numerator and 365 as the denominator.
If you provide an automobile continuously for at least 30
days, but the period covers 2 calendar years (or 2 special
accounting periods if you’re using the special accounting
rule for fringe benefits discussed in section 4), you can
use the prorated annual lease value or the daily lease
value.
If you have 20 or more automobiles, see Regulations
section 1.61-21(d)(6).
If an automobile is unavailable to the employee be-
cause of the employee’s personal reasons (for example, if
the employee is on vacation), you can't take into account
the periods of unavailability when you use a prorated an-
nual lease value.
You can't use a prorated annual lease value if the
reduction of federal tax is the main reason the au-
tomobile is unavailable.
Daily Lease Value
If you provide an automobile to an employee for a continu-
ous period of less than 30 days, use the daily lease value
CAUTION
!
to figure its value. Figure the daily lease value by multiply-
ing the annual lease value by a fraction, using four times
the number of days of availability as the numerator and
365 as the denominator.
However, you can apply a prorated annual lease value
for a period of continuous availability of less than 30 days
by treating the automobile as if it had been available for 30
days. Use a prorated annual lease value if it would result
in a lower valuation than applying the daily lease value to
the shorter period of availability.
Unsafe Conditions Commuting Rule
Under this rule, the value of commuting transportation you
provide to a qualified employee solely because of unsafe
conditions is $1.50 for a one-way commute (that is, from
home to work or from work to home). If more than one em-
ployee commutes in the vehicle, this value applies to each
employee. This amount must be included in the employ-
ee's wages or reimbursed by the employee.
You can use the unsafe conditions commuting rule for
qualified employees if all of the following requirements are
met.
•
The employee would ordinarily walk or use public
transportation for commuting.
•
You have a written policy under which you don't pro-
vide the transportation for personal purposes other
than commuting because of unsafe conditions.
•
The employee doesn't use the transportation for per-
sonal purposes other than commuting because of un-
safe conditions.
These requirements must be met on a trip-by-trip basis.
Commuting transportation. This is transportation to or
from work using any motorized wheeled vehicle (including
an automobile) manufactured for use on public streets,
roads, and highways. You or the employee must buy the
transportation from a party that isn't related to you. If the
employee buys it, you must reimburse the employee for its
cost (for example, cab fare) under a bona fide reimburse-
ment arrangement.
Qualified employee. A qualified employee for 2024 is
one who:
•
Performs services during the year;
•
Is paid on an hourly basis;
•
Isn't claimed under section 213(a)(1) of the Fair Labor
Standards Act (FLSA) of 1938 (as amended) to be ex-
empt from the minimum wage and maximum hour pro-
visions;
•
Is within a classification for which you actually pay, or
have specified in writing that you will pay, overtime pay
of at least one and one-half times the regular rate pro-
vided in section 207 of FLSA; and
•
Received pay of not more than $150,000 during 2023.
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However, an employee isn't considered a qualified em-
ployee if you don't comply with the recordkeeping require-
ments concerning the employee's wages, hours, and other
conditions and practices of employment under section
211(c) of FLSA and the related regulations.
Unsafe conditions. Unsafe conditions exist if, under the
facts and circumstances, a reasonable person would con-
sider it unsafe for the employee to walk or use public
transportation at the time of day the employee must com-
mute. One factor indicating whether it is unsafe is the his-
tory of crime in the geographic area surrounding the em-
ployee's workplace or home at the time of day the
employee commutes.
4. Rules for Withholding,
Depositing, and Reporting
Use the following guidelines for withholding, depositing,
and reporting taxable noncash fringe benefits.
Valuation of taxable fringe benefits. Generally, you
must determine the value of taxable noncash fringe bene-
fits no later than January 31 of the next year. Before Janu-
ary 31, you may reasonably estimate the value of the
fringe benefits for purposes of withholding and depositing
on time.
Choice of period for withholding, depositing, and re-
porting. For employment tax and withholding purposes,
you can treat taxable noncash fringe benefits (including
personal use of employer-provided highway motor vehi-
cles) as paid on a pay period, quarter, semiannual, an-
nual, or other basis. But the benefits must be treated as
paid no less frequently than annually. You don't have to
choose the same period for all employees. You can with-
hold more frequently for some employees than for others.
You can change the period as often as you like as long
as you treat all of the benefits provided in a calendar year
as paid no later than December 31 of the calendar year.
You can also treat the value of a single fringe benefit as
paid on one or more dates in the same calendar year,
even if the employee receives the entire benefit at one
time. For example, if your employee receives a fringe ben-
efit valued at $1,000 in one pay period during 2024, you
can treat it as made in four payments of $250, each in a
different pay period of 2024. You don't have to notify the
IRS of the use of the periods discussed above.
Transfer of property. The above choice for reporting
and withholding doesn't apply to a cash fringe benefit or a
fringe benefit that is a transfer of tangible or intangible per-
sonal property of a kind normally held for investment or a
transfer of real property. For these kinds of fringe benefits,
you must use the actual date the property was transferred
to the employee.
Withholding and depositing taxes. You can add the
value of taxable fringe benefits to regular wages for a pay-
roll period and figure income tax withholding on the total.
Or you can withhold federal income tax on the value of
fringe benefits at the flat 22% rate that applies to supple-
mental wages. See section 7 of Pub. 15 for the flat rate
(37%) when supplemental wage payments to an individual
exceed $1 million during the year.
You must withhold the applicable income, social secur-
ity, and Medicare taxes on the date or dates you chose to
treat the benefits as paid. Deposit the amounts withheld
as discussed in section 11 of Pub. 15.
Additional Medicare Tax withholding. In addition to
withholding Medicare tax at 1.45%, you must withhold a
0.9% Additional Medicare Tax from wages you pay to an
employee in excess of $200,000 in a calendar year. You’re
required to begin withholding Additional Medicare Tax in
the pay period in which you pay wages in excess of
$200,000 to an employee and continue to withhold it each
pay period until the end of the calendar year. Additional
Medicare Tax is only imposed on the employee. There is
no employer share of Additional Medicare Tax. All wages
that are subject to Medicare tax are subject to Additional
Medicare Tax withholding if paid in excess of the $200,000
withholding threshold.
For more information on what wages are subject to
Medicare tax, see Table 2-1, and the chart, Special Rules
for Various Types of Services and Payments, in section 15
of Pub. 15. For more information on Additional Medicare
Tax, go to IRS.gov/ADMTfaqs.
Amount of deposit. To estimate the amount of in-
come tax withholding and employment taxes and to de-
posit them on time, make a reasonable estimate of the
value of the taxable fringe benefits provided on the date or
dates you chose to treat the benefits as paid. Determine
the estimated deposit by figuring the amount you would
have had to deposit if you had paid cash wages equal to
the estimated value of the fringe benefits and withheld
taxes from those cash wages. Even if you don't know
which employee will receive the fringe benefit on the date
the deposit is due, you should follow this procedure.
If you underestimate the value of the fringe benefits and
deposit less than the amount you would have had to de-
posit if the applicable taxes had been withheld, you may
be subject to a penalty.
If you overestimate the value of the fringe benefit and
overdeposit, you can either claim a refund or have the
overpayment applied to your next employment tax return.
See the instructions for your employment tax return.
If you paid the required amount of taxes but withheld a
lesser amount from the employee, you can recover from
the employee the social security, Medicare, or income
taxes you deposited on the employee's behalf and inclu-
ded on the employee's Form W-2. However, you must re-
cover the income taxes before April 1 of the following year.
Paying your employee's share of social security and
Medicare taxes. If you choose to pay your employee's
social security and Medicare taxes on taxable fringe bene-
fits without deducting them from the employee’s pay, you
must include the amount of the payments in the employ-
ee's wages. Also, if your employee leaves your employ-
ment and you have unpaid and uncollected taxes for
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noncash benefits, you’re still liable for those taxes. You
must add the uncollected employee share of social secur-
ity and Medicare taxes to the employee's wages. Follow
the procedure discussed under Employee's Portion of
Taxes Paid by Employer in section 7 of Pub. 15-A. Don't
use withheld federal income tax to pay the social security
and Medicare taxes.
Special accounting rule. You can treat the value of tax-
able noncash benefits as paid on a pay period, quarter,
semiannual, annual, or other basis, provided that the ben-
efits are treated as paid no less frequently than annually.
You can treat the value of taxable noncash fringe benefits
provided during the last 2 months of the calendar year, or
any shorter period within the last 2 months, as paid in the
next year. Thus, the value of taxable noncash benefits ac-
tually provided in the last 2 months of 2023 could be trea-
ted as provided in 2024 together with the value of benefits
provided in the first 10 months of 2024. This doesn't mean
that all benefits treated as paid during the last 2 months of
a calendar year can be deferred until the next year. Only
the value of benefits actually provided during the last 2
months of the calendar year can be treated as paid in the
next calendar year.
Limitation. The special accounting rule can't be used,
however, for a fringe benefit that is a transfer of tangible or
intangible personal property of a kind normally held for in-
vestment or a transfer of real property.
Conformity rules. Use of the special accounting rule
is optional. You can use the rule for some fringe benefits
but not others. The period of use doesn't need to be the
same for each fringe benefit. However, if you use the rule
for a particular fringe benefit, you must use it for all em-
ployees who receive that benefit.
If you use the special accounting rule, your employee
must also use it for the same period you use it. But your
employee can't use the special accounting rule unless you
do.
You don't have to notify the IRS if you use the special
accounting rule. You may also, for appropriate administra-
tive reasons, change the period for which you use the rule
without notifying the IRS. But you must report the income
and deposit the withheld taxes as required for the
changed period.
Special rules for highway motor vehicles. If an em-
ployee uses the employer's vehicle for personal purposes,
the value of that use must be determined by the employer
and included in the employee's wages. The value of the
personal use must be based on the FMV or determined by
using one of the following three special valuation rules
previously discussed in section 3.
•
The cents-per-mile rule.
•
The commuting rule (for commuting use only).
•
The lease value rule.
Election not to withhold income tax. You can
choose not to withhold income tax on the value of an em-
ployee's personal use of a highway motor vehicle you pro-
vided. You don't have to make this choice for all
employees. You can withhold income tax from the wages
of some employees but not others. You must, however,
withhold the applicable social security and Medicare taxes
on such benefits.
You can choose not to withhold income tax on an em-
ployee's personal use of a highway motor vehicle by:
•
Notifying the employee (as described below) that you
choose not to withhold; and
•
Including the value of the benefits in boxes 1, 3, 5, and
14 on a timely furnished Form W-2. For use of a sepa-
rate statement in lieu of using box 14, see the General
Instructions for Forms W-2 and W-3.
The notice must be in writing and must be provided to
the employee by January 31 of the election year or within
30 days after a vehicle is first provided to the employee,
whichever is later. This notice must be provided in a man-
ner reasonably expected to come to the attention of the af-
fected employee. For example, the notice may be mailed
to the employee, included with a paycheck, or posted
where the employee could reasonably be expected to see
it. You can also change your election not to withhold at any
time by notifying the employee in the same manner.
Amount to report on Form 941 (or Form 943, 944, or
CT-1) and Form W-2. The actual value of fringe benefits
provided during a calendar year (or other period as ex-
plained under Special accounting rule, earlier in this sec-
tion) must be determined by January 31 of the following
year. You must report the actual value on Form 941 (or
Form 943, 944, or CT-1) and Form W-2. If you choose,
you can use a separate Form W-2 for fringe benefits and
any other benefit information.
Include the value of the fringe benefit in box 1 of Form
W-2. Also include it in boxes 3 and 5, if applicable. You
may show the total value of the fringe benefits provided in
the calendar year or other period in box 14 of Form W-2.
For additional information about reporting of fringe bene-
fits on Form W-2, see the General Instructions for Forms
W-2 and W-3.
If you use the special accounting rule, you must notify
the affected employees of the period in which you used it.
You must give this notice at or near the date you give the
Form W-2, but not earlier than with the employee's last
paycheck of the calendar year.
How To Get Tax Help
If you have questions about a tax issue; need help prepar-
ing your tax return; or want to download free publications,
forms, or instructions, go to IRS.gov to find resources that
can help you right away.
Preparing and filing your tax return. Go to IRS.gov/
EmploymentEfile for more information on filing your em-
ployment tax returns electronically.
Getting answers to your tax questions. On
IRS.gov, you can get up-to-date information on
current events and changes in tax law.
Publication 15-B (2024) 31
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•
IRS.gov/Help: A variety of tools to help you get an-
swers to some of the most common tax questions.
•
IRS.gov/Forms: Find forms, instructions, and publica-
tions. You will find details on the most recent tax
changes and interactive links to help you find answers
to your questions.
•
You may also be able to access tax information in your
e-filing software.
Need someone to prepare your tax return? There are
various types of tax return preparers, including enrolled
agents, certified public accountants (CPAs), accountants,
and many others who don’t have professional credentials.
If you choose to have someone prepare your tax return,
choose that preparer wisely. A paid tax preparer is:
•
Primarily responsible for the overall substantive accu-
racy of your return,
•
Required to sign the return, and
•
Required to include their preparer tax identification
number (PTIN).
Although the tax preparer always signs the return,
you're ultimately responsible for providing all the
information required for the preparer to accurately
prepare your return and for the accuracy of every item re-
ported on the return. Anyone paid to prepare tax returns
for others should have a thorough understanding of tax
matters. For more information on how to choose a tax pre-
parer, go to Tips for Choosing a Tax Preparer on IRS.gov.
Employers can register to use Business Services On-
line. The Social Security Administration (SSA) offers on-
line service at SSA.gov/employer for fast, free, and secure
W-2 filing options to CPAs, accountants, enrolled agents,
and individuals who process Form W-2 and Form W-2c.
IRS social media. Go to IRS.gov/SocialMedia to see the
various social media tools the IRS uses to share the latest
information on tax changes, scam alerts, initiatives, prod-
ucts, and services. At the IRS, privacy and security are our
highest priority. We use these tools to share public infor-
mation with you. Don’t post your social security number
(SSN) or other confidential information on social media
sites. Always protect your identity when using any social
networking site.
The following IRS YouTube channels provide short, in-
formative videos on various tax-related topics in English,
Spanish, and ASL.
•
Youtube.com/irsvideos.
•
Youtube.com/irsvideosmultilingua.
•
Youtube.com/irsvideosASL.
Watching IRS videos. The IRS Video portal
(IRSVideos.gov) contains video and audio presentations
for individuals, small businesses, and tax professionals.
CAUTION
!
Online tax information in other languages. You can
find information on IRS.gov/MyLanguage if English isn’t
your native language.
Free Over-the-Phone Interpreter (OPI) Service. The
IRS is committed to serving taxpayers with limited-English
proficiency (LEP) by offering OPI services. The OPI Serv-
ice is a federally funded program and is available at Tax-
payer Assistance Centers (TACs), most IRS offices, and
every VITA/TCE tax return site. The OPI Service is acces-
sible in more than 350 languages.
Accessibility Helpline available for taxpayers with
disabilities. Taxpayers who need information about ac-
cessibility services can call 833-690-0598. The Accessi-
bility Helpline can answer questions related to current and
future accessibility products and services available in al-
ternative media formats (for example, braille, large print,
audio, etc.). The Accessibility Helpline doesn’t have ac-
cess to your IRS account. For help with tax law, refunds, or
account-related issues, go to IRS.gov/LetUsHelp.
Disasters. Go to IRS.gov/DisasterRelief to review the
available disaster tax relief.
Getting tax forms and publications. Go to IRS.gov/
Forms to view, download, or print most of the forms, in-
structions, and publications you may need. Or, you can go
to IRS.gov/OrderForms to place an order.
Getting tax publications and instructions in eBook
format. Download and view most tax publications and in-
structions (including Pub. 15-B) on mobile devices as
eBooks at IRS.gov/eBooks.
IRS eBooks have been tested using Apple's iBooks for
iPad. Our eBooks haven’t been tested on other dedicated
eBook readers, and eBook functionality may not operate
as intended.
Get a transcript of your return. You can get a copy of
your tax transcript or a copy of your return by calling
800-829-4933 or by mailing Form 4506-T (transcript re-
quest) or Form 4506 (copy of return) to the IRS.
Reporting and resolving your tax-related identity
theft issues.
•
Tax-related identity theft happens when someone
steals your personal information to commit tax fraud.
Your taxes can be affected if your EIN is used to file a
fraudulent return or to claim a refund or credit.
•
The IRS doesn’t initiate contact with taxpayers by
email, text messages (including shortened links), tele-
phone calls, or social media channels to request or
verify personal or financial information. This includes
requests for personal identification numbers (PINs),
passwords, or similar information for credit cards,
banks, or other financial accounts.
•
Go to IRS.gov/IdentityTheft, the IRS Identity Theft
Central webpage, for information on identity theft and
data security protection for taxpayers, tax professio-
nals, and businesses. If your EIN has been lost or
32 Publication 15-B (2024)
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stolen or you suspect you’re a victim of tax-related
identity theft, you can learn what steps you should
take.
Making a tax payment. Payments of U.S. tax must be
remitted to the IRS in U.S. dollars. Digital assets are not
accepted. Go to IRS.gov/Payments for information on how
to make a payment using any of the following options.
•
Debit Card, Credit Card, or Digital Wallet: Choose an
approved payment processor to pay online or by
phone.
•
Electronic Funds Withdrawal: Schedule a payment
when filing your federal taxes using tax return prepara-
tion software or through a tax professional.
•
Electronic Federal Tax Payment System: Best option
for businesses. Enrollment is required.
•
Check or Money Order: Mail your payment to the ad-
dress listed on the notice or instructions.
•
Cash: You may be able to pay your taxes with cash at
a participating retail store.
•
Same-Day Wire: You may be able to do same-day
wire from your financial institution. Contact your finan-
cial institution for availability, cost, and time frames.
Note. The IRS uses the latest encryption technology to
ensure that the electronic payments you make online, by
phone, or from a mobile device using the IRS2Go app are
safe and secure. Paying electronically is quick, easy, and
faster than mailing in a check or money order.
What if I can’t pay now? Go to IRS.gov/Payments for
more information about your options.
•
Apply for an online payment agreement (IRS.gov/
OPA) to meet your tax obligation in monthly install-
ments if you can’t pay your taxes in full today. Once
you complete the online process, you will receive im-
mediate notification of whether your agreement has
been approved.
•
Use the Offer in Compromise Pre-Qualifier to see if
you can settle your tax debt for less than the full
amount you owe. For more information on the Offer in
Compromise program, go to IRS.gov/OIC.
Understanding an IRS notice or letter you’ve re-
ceived. Go to IRS.gov/Notices to find additional informa-
tion about responding to an IRS notice or letter.
Responding to an IRS notice or letter. You can now
upload responses to all notices and letters using the
Document Upload Tool. For notices that require additional
action, taxpayers will be redirected appropriately on
IRS.gov to take further action. To learn more about the
tool, go to IRS.gov/Upload.
Contacting your local TAC. Keep in mind, many ques-
tions can be answered on IRS.gov without visiting a TAC.
Go to IRS.gov/LetUsHelp for the topics people ask about
most. If you still need help, TACs provide tax help when a
tax issue can’t be handled online or by phone. All TACs
now provide service by appointment, so you’ll know in ad-
vance that you can get the service you need without long
wait times. Before you visit, go to IRS.gov/TACLocator to
find the nearest TAC and to check hours, available serv-
ices, and appointment options. Or, on the IRS2Go app,
under the Stay Connected tab, choose the Contact Us op-
tion and click on “Local Offices.”
The Taxpayer Advocate Service (TAS)
Is Here To Help You
What Is TAS?
TAS is an independent organization within the IRS that
helps taxpayers and protects taxpayer rights. TAS strives
to ensure that every taxpayer is treated fairly and that you
know and understand your rights under the Taxpayer Bill
of Rights.
How Can You Learn About Your Taxpayer
Rights?
The Taxpayer Bill of Rights describes 10 basic rights that
all taxpayers have when dealing with the IRS. Go to
TaxpayerAdvocate.IRS.gov to help you understand what
these rights mean to you and how they apply. These are
your rights. Know them. Use them.
What Can TAS Do for You?
TAS can help you resolve problems that you can’t resolve
with the IRS. And their service is free. If you qualify for
their assistance, you will be assigned to one advocate
who will work with you throughout the process and will do
everything possible to resolve your issue. TAS can help
you if:
•
Your problem is causing financial difficulty for you,
your family, or your business;
•
You face (or your business is facing) an immediate
threat of adverse action; or
•
You’ve tried repeatedly to contact the IRS but no one
has responded, or the IRS hasn’t responded by the
date promised.
How Can You Reach TAS?
TAS has offices in every state, the District of Columbia,
and Puerto Rico. To find your advocate’s number:
•
Go to TaxpayerAdvocate.IRS.gov/Contact-Us;
•
Download Pub. 1546, The Taxpayer Advocate Service
Is Your Voice at the IRS, available at IRS.gov/pub/irs-
pdf/p1546.pdf;
•
Call the IRS toll free at 800-TAX-FORM
(800-829-3676) to order a copy of Pub. 1546;
•
Check your local directory; or
•
Call TAS toll free at 877-777-4778.
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How Else Does TAS Help Taxpayers?
TAS works to resolve large-scale problems that affect
many taxpayers. If you know of one of these broad issues,
report it to TAS at IRS.gov/SAMS. Be sure to not include
any personal taxpayer information.
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To help us develop a more useful index, please let us know if you have ideas for index entries.
See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.
Index
A
Accident benefits 5
Achievement awards 7
Additional Medicare Tax 30
Adoption assistance 8
Annual lease value 27
Annual lease value table 28
Assistance (See Tax help)
Athletic facilities 9
Automobile (See Vehicles)
Awards, achievement 7
B
Bicycle commuting reimbursement 2, 21
Birthday gifts 9
C
Cafeteria plans 3
Cents-per-mile rule 1, 25
COBRA premiums 7
Comments on publication 2
Commuter highway vehicle 21
Commuting rule 26
Compensation reduction agreements 21
Copying machine use 9
D
Daily lease value 29
De minimis (minimal) benefits:
In general 9
Meals 17
Transportation 20
Definition of marriage 2
Demonstrator cars 23
Dependent care assistance 10
Deposit rules 30
Discounts for employees 11
E
Educational assistance 10
Employee benefit programs:
Accident and health benefits 5
Cafeteria plans 3
Dependent care assistance 10
Educational assistance 10
Group-term life insurance 13
Employee discounts 11
Employee stock options 12
Employer-operated eating facility 17
Employer-provided cell phones 13
Exclusion rules 5
F
Fair market value (FMV) 25
Fringe benefit overview 3
Fringe benefits:
Special accounting rule 31
Valuation rules 25
G
General valuation rule 25
Group-term life insurance 13
H
Health benefits 5
Health flexible spending arrangement
(FSA) 2, 4
Health savings accounts (HSAs) 15
Holiday gifts 9
I
Insurance:
Accident and health 5
Group-term life 13
Long-term care 6
L
Lease value rule 27
Length of service awards 7
Life insurance:
Group-term 13
Spouse or dependent 9
Lodging 16
Long-term care insurance 6
M
Meals:
De minimis 17
On your business premises 18
Medical reimbursement plans 5
Minimal benefits 9
Moving expense reimbursement 2
N
No-additional-cost services 19
Nonpersonal use vehicles, qualified 23
O
Options on stock 12
Outplacement services 24
P
P.L. 115-97, Tax Cuts and Jobs Act 2, 18,
21, 22
Parking, qualified 21
Parties 9
Performance of services 3
Pickup trucks 23
Picnics 9
Product testing 24
Prorated annual lease value 29
Provider defined 3
Publications (See Tax help)
Q
Qualified small employer health
reimbursement arrangements
(QSEHRAs) 7
Qualified transportation benefits 21
R
Recipient defined 3
Reporting rules 30
Retirement planning services 20
S
Safety achievement awards 7
Self insurance (medical reimbursement
plans) 5
Services, no-additional-cost 19
Simple cafeteria plans for small
businesses 4
Special accounting rule 31
Stock options, employee 12
Student loan payment exclusion 10
Suggestions for publication 2
T
Tax help 31
Taxable benefits 3
Tickets for theater or sporting events 9
Transit pass 21
Transportation benefits:
De minimis 20
Qualified 21
Tuition reduction 22
U
Unsafe conditions commuting rule 29
V
Valuation rules 25
Vans 23
Vehicles:
Business use of (See Working condition
benefits)
Commuter highway 21
Qualified nonpersonal use 23
Valuation of 25
W
Withholding rules 30
Working condition benefits 22
Publication 15-B (2024) 35
