A—Taxation of Employee Benefits

Employee benefits, once considered an “addition” to wages, have now become an integral part of virtually all compensation packages. This overview evaluates the tax attributes of various employee benefit plans

Characterization of a benefit as either bad, better, or best, can be made according to its effect upon the income taxes of the employer and the employee. Because of reductions in the top C corporate marginal tax rate from 34 percent to 21 percent and a much smaller reduction (actually an increase for some taxpayers) in the individual tax rates – the analysis of various employee benefits has changed since the 2017 Tax Act. In 2017, you could use an example where we had an employer in a 34 percent marginal tax bracket and an employee in a 25 percent tax bracket. However, for the first time in recent memory, it is possible (if not likely) for the corporate income tax rate to be less than the individual income tax rate. For this reason it is very important to consider relative tax brackers when considering employee benefit planning.