8909 / What is a “working condition” fringe benefit?
For example, qualified automobile demonstration is considered to be a working condition fringe benefit and is defined as the use of an auto by a full-time auto salesman in the area where the dealer’s sales office is located provided that the auto is used to aid the salesman in his job and personal use is substantially restricted.2 The IRS has ruled that tax preparation services provided by an employer to employees stationed in foreign countries as a part of a tax equalization program were not excludable fringe benefits because the employees would be unable to deduct the expenses if they had paid for them themselves. Further, the IRS found that the fair market value (determined as though the employees had paid for the services in an arm’s length transaction) was both includable in income and treated as wages for employment tax purposes.3
Planning Point: Employers should be particularly conscious of low-value fringe benefits around the holidays. Employers are required to treat “gifts” as wages--meaning that federal withholding and tax withholding requirements will apply. Failure to comply can result in penalties. In order to avoid these requirements, the gift will have to qualify as a fringe benefit. Importantly, “gifts” of cash or cash equivalents can never qualify as fringe benefits. Therefore, things like gift cards must be treated in the exact same way as wages—even if the dollar value is relatively low. Other types of gifts that have a relatively low value can be excluded from income. The gift, however, must be so small that accounting for the value would be impractical or unreasonable. There is no set dollar limit that qualifies as “de minimis” in the eyes of the IRS—but it is generally thought that even infrequent gifts that are valued at more than $100 will not qualify.
This exclusion is generally available to any current employee, any partner who performs services for the partnership, any director of the employer, and any independent contractor who performs services for the employer.4 There is no nondiscrimination requirement.
1. IRC § 132(d).
2. IRC § 132(j)(3).
3. ILM 201810007.