Working Condition Fringe Benefits
An employer may offer certain work-related property or services to employees without including their fair market value in the employees' income if the following conditions are met:
- The employee's use of the property or services must related to the employer's trade or business.
- The employee would be able to take a business deduction on his or her personal tax return if the employee paid for the benefit (but exceptions exist for reimbursements of business-related club dues and spousal travel expenses).
- The term "employee" means a current employee, partner, director, or independent contractor performing services for the employer.
- The employer must maintain the required records to substantiate the business deductions. Where the benefit is in the form of cash, the employer must require beforehand that the payment be used for a business activity, that the employee verify that the payment was used for that purpose, and that any excess be returned to the employer within a reasonable period of time.
Working condition fringes may include the following:
- business use of a company car or airplane
- chauffer or bodyguard provided for security protection
- dues and memberships for professional organizations
- an employee's subscriptions to business periodicals
- job-related education
- goods used for product testing by employees
- outplacement services
Tax preparation services are not a working condition fringe. The value is not excluded as a working condition fringe benefit because the employee could not deduct the cost of the services as a business expense, even though it might be deductible as a personal miscellaneous deduction.