Fringe Benefits

<span style="font-weight: 400;">Only payments that are classified as qualified student loan payments (QSLPs) can be considered in the employer’s matching program. A qualified student loan payment is one that is made on a loan taken for the sole purpose of paying qualified education expenses for the individual, a spouse or someone who was the individual’s dependent at the time the debt was incurred. The loan must be for education provided during an academic period for an eligible student and the expense must be paid or incurred within a reasonable period of time before or after the debt was incurred.<a href="#_ftn1" name="_ftnref1">¹</a></span><br /> <br /> <span style="font-weight: 400;">Qualified education expenses include tuition, fees, books, and other similar required expenses incurred by an eligible student. An eligible student, in turn, is someone who is enrolled at least half-time (with at least six credit hours) in some type of program of study that is designed to lead to a degree, certificate or other type of recognized education credential at an eligible education institution.</span><br /> <br /> <span style="font-weight: 400;">Expenses incurred for games, sports, hobbies, or non-credit activities do not qualify.</span><br /> <br /> <span style="font-weight: 400;">The law does not specify whether the student must have graduated from or completed the program in order for the related student loan debt to qualify. Because the student loan matching program is entirely optional, it seems possible that the employer may be entitled to decide whether graduation is a requirement for receiving the benefit. </span><br /> <br /> <span style="font-weight: 400;">The IRS has provided interim guidance on QSLPs via Notice 2024-63, which is effective in 2025 (employers can rely on a reasonable, good faith interpretation during 2024).  Future regulations and guidance is expected.</span><br /> <br /> <span style="font-weight: 400;">In Notice 2024-63, the IRS clarified that the QSLP must be for the employee, the employee's spouse or dependents.  The employee must have a legal obligation to repay the loan, meaning that it must be either their loan or a loan they co-signed.  Absent the employee's legal obligation to repay, there is no QSLP.  If the employee did co-sign the loan, they must actually be making the payments for those payments to qualify as QSLPs.  When a dependent is making the payments, they are not QSLPs.  </span><br /> <br /> <span style="font-weight: 400;">The maximum amount that can be treated as a QSLP for the year is the annual 401(k) contribution limit for the year (or, if less, the employee’s compensation for the year), reduced by the employee’s elective deferrals for the year.</span><br /> <br /> <span style="font-weight: 400;">All employees who are eligible to receive the match must be eligible for QSLPs.  The employer cannot restrict the match to a certain group of employees (an exception exists for collectively bargained employees), a certain type of loan or a certain type of educational institution or degree type.  </span><br /> <br /> <span style="font-weight: 400;">The employer can require that the employee be employed at the last day of the year to receive the match, but only if the employee has a similar requirement for traditional matching contributions. The employer is entitled to make QSLP matches at a different frequency from elective deferral-based matching contributions.</span><br /> <br /> <span style="font-weight: 400;">The employer can establish one single QSLP match claiming deadline for the year, or can elect to establish multiple deadlines, so long as those deadlines are “reasonable”.  As an example, the IRS stated that an annual deadline that is three months from the end of the plan year would be reasonable, but earlier deadlines could also be found reasonable.</span><br /> <br /> <span style="font-weight: 400;">Loan repayments made in prior plan years cannot be matched in the current plan year. Employee Certification.  Employers must require that employees provide specific certification with respect to their QSLPs.  The employer can require a separate certification for each qualified education loan payment intended to qualify as a QSLP or permit annual certification that applies to all payments intended to qualify.  </span><br /> <br /> <span style="font-weight: 400;">Certification must include the following information: (1) the amount of the loan payment; (2) the date of the loan payment; (3) that the payment was made by the employee; (4) that the loan being repaid is a qualified education loan and was used to pay for qualified higher education expenses of the employee, the employee’s spouse, or the employee’s dependent; and (5) that the loan was incurred by the employee.<a href="#_ftn1" name="_ftnref1">²</a></span><span style="font-weight: 400;">  The employer can require affirmative certification of each element by the employee.  The employer can also independently verify the first three elements.</span><br /> <br /> <strong>1.  <span style="font-weight: 400;">IRC § 401(m)(13)</span></strong><br /> <br /> <strong>2.  <span style="font-weight: 400;">Notice 2024-63.</span></strong>

<div class="Section1"><br /> <br /> Generally, fringe benefits not expressly excluded from income by the Code must be included in gross income for income tax purposes and in wages for purposes of FICA and FUTA.<a href="#_ftn1" name="_ftnref1">¹</a> IRC Section 132 provides that certain fringe benefits that are classified as “no-additional-cost-services” may be excluded from income.<a href="#_ftn2" name="_ftnref2">²</a> As the name suggests, a “no-additional-cost-service” is one offered by the employer (1) at no substantial additional cost (including foregone revenue) to the employer for providing such service to the employee when (2) such service is offered to customers in the ordinary course of the line of business of the employer in which the employee is working.<br /> <br /> For example, the cost of a flight provided to an airline employee traveling on a space-available basis is an excess capacity service and is eligible for treatment as a no-additional-cost-service. In addition, the services of a flight attendant and the cost of in-flight meals given to the airline employee traveling on a space-available basis are merely incidental to the services being provided (i.e. the flight) and, thus, the employee does not have to include them in income.<a href="#_ftn3" name="_ftnref3">³</a> Reciprocity is allowed between unrelated employers if certain conditions are met.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> The no-additional-cost services exclusion applies to services provided to retired and disabled employees, spouses and dependent children, as well as to current employees. Widowers and widows of employees who died while employed also qualify for the exclusion.<a href="#_ftn5" name="_ftnref5">⁵</a> A partner who performs services for a partnership will be considered employed by the partnership.<a href="#_ftn6" name="_ftnref6">⁶</a><br /> <br /> The no-additional-cost services exclusion is not available to highly compensated employees unless the service is provided on substantially the same terms to each member of a group of employees which is defined under a reasonable classification set up by the employer which does not discriminate in favor of highly compensated employees.<a href="#_ftn7" name="_ftnref7">⁷</a> For this purpose, “highly compensated employee” has the same meaning as provided in IRC Section 414(q) for qualified plans.<a href="#_ftn8" name="_ftnref8">⁸</a> Generally, a highly compensated employee is any employee:<br /> <p style="padding-left: 40px;">(1)     who was a five percent owner at any time during the year or the preceding year; or</p><br /> <p style="padding-left: 40px;">(2)     for the preceding year had compensation in excess of $130,000, as indexed for inflation in 2020 and 2021 ($155,000 for 2024, $150,000 for 2023 and $135,000 for 2022) and was in the top-paid group of employees for the preceding year.</p><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.     IRC § 61(a)(1).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.     IRC § 132.<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.     Treas. Reg. § 1.132-2(a)(5).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.     See Treas. Reg. § 1.132-2(b).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.     IRC § 132(h).<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>.     Treas. Reg. § 1.132-1(b).<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>.     IRC § 132(j)(1).<br /> <br /> <a href="#_ftnref8" name="_ftn8">8</a>.     IRC § 132(j)(6).<br /> <br /> </div>

<div class="Section1">Generally, certain employee achievement awards granted by an employer to recognize the employee&rsquo;s length of service or safety achievements are not taxable to the employee and are deductible by the employer. Under the 2017 tax reform legislation, certain awards are excluded from this treatment, including cash, cash equivalents, gift certificates, vacations, meals, lodging, tickets to sports or theater events, stocks, bonds, securities and other similar items.<a href="#_ftn1" name="_ftnref1">¹</a>This essentially means that employee achievement awards must be received in the form of tangible personal property in order to receive favorable tax treatment. These provisions are effective for tax years beginning after December 31, 2017.<br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.IRC &sect;&sect; 74, 274(j)(3).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> A stock bonus plan is required to pass through certain voting rights to participants or beneficiaries. If an employer&rsquo;s securities are &ldquo;registration-type,&rdquo; each participant or beneficiary generally must be entitled to direct the plan as to how securities allocated to him or her are to be voted.<a href="#_ftn1" name="_ftnref1">¹</a> &ldquo;Registration-type&rdquo; securities are securities that must be registered under Section 12 of the Securities and Exchange Act of 1934 or that would be required to be registered except for an exemption in that law.<a href="#_ftn2" name="_ftnref2">²</a>If securities are not &ldquo;registration-type&rdquo; and more than 10 percent of a plan&rsquo;s assets are invested in securities of the employer, each participant (or beneficiary) must be permitted to direct voting rights under securities allocated to his or her account with respect to approval of corporate mergers, consolidations, recapitalizations, reclassifications, liquidations, dissolutions, sales of substantially all of the business&rsquo;s assets, and similar transactions as provided in future regulations.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> If the plan contains non-registration-type securities, the plan satisfies this requirement if each participant is given one vote with respect to an issue and the trustee votes the shares held by the plan in a proportion that takes this vote into account.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.IRC &sect;&sect; 401(a)(28), 4975(e)(7), 409(e)(2).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.IRC &sect; 409(e)(4).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.IRC &sect; 409(e)(3).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.IRC &sect;&sect; 401(a)(22), 409(e)(3), 409(e)(5).<br /> <br /> </div></div><br />

<div class="Section1">An employee may generally exclude from income amounts received pursuant to an employer-sponsored Educational Assistance Program (EAP) that was established in order to fund employee education-related expenses, subject to the maximum limitation discussed below.<a href="#_ftn1" name="_ftnref1">¹</a> This exclusion was made permanent by EGTRRA 2001 following a number of extensions in preceding years. Amounts received under an EAP may be excluded whether or not the educational expenses are job related.<a href="#_ftn2" name="_ftnref2">²</a> An employee cannot exclude from income more than $5,250 in educational assistance benefits in any calendar year.<a href="#_ftn3" name="_ftnref3">³</a><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.IRC &sect; 127(a)(1).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.Treas. Reg. &sect; 1.127(c)(4).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.IRC &sect; 127(a)(2).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <p class="PA">Yes. The employer&rsquo;s expenses incurred in providing benefits under a dependent care assistance program generally are deductible to the employer as ordinary and necessary business expenses under IRC Section 162.</p><br /> <br /> </div><br />

<div class="Section1">The &ldquo;qualified employee discount&rdquo; exclusion applies to employee discounts provided by the employer on any property (other than real property or personal property of a kind held for investment) or services which are offered for sale to customers in the ordinary course of the line of business of the employer for which the employee works. For the benefit to be excludable from income, the discount may not exceed:<br /> <p style="padding-left: 40px">(1) the gross profit percentage of the price at which the property is being offered by the employer to customers in the case of property; or</p><br /> <p style="padding-left: 40px">(2) 20 percent of the price at which services are offered by the employer to customers, in the case of services.<a href="#_ftn1" name="_ftnref1">¹</a></p><br /> For purposes of this provision, an insurance policy or a commission or similar fee charged by a brokerage house or an underwriter on sales of securities is considered a service.<a href="#_ftn2" name="_ftnref2">²</a> The qualified employee discount will generally be available for employees of leased sections of department stores.<a href="#_ftn3" name="_ftnref3">³</a> The same nondiscrimination rules apply to qualified employee discounts as apply to no-additional-cost services (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8905">8905</a>).<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.IRC &sect; 132(c).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.Treas. Reg. &sect; 1.132(a)(2).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.IRC &sect; 132(j)(2).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.IRC &sect; 132(j)(1).<br /> <br /> </div></div><br />

<div class="Section1">The 2017 tax reform legislation increased the aggregate amount of length of service awards that may accrue for a bona fide volunteer with respect to any year of service to $6,000 (from $3,000) for tax years beginning after December 31, 2017.<a href="#_ftn1" name="_ftnref1">¹</a> The $6,000 amount will be adjusted for inflation in $500 increments ($6,500 in 2022 and $7,500 in 2023).<div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.IRC &sect; 457(e)(11)(B).<br /> <br /> </div></div><br />

<div class="Section1">Yes, an employer can provide employees with benefits through a stock bonus plan. Generally, a stock bonus plan is a profit sharing plan that holds employer securities and generally distributes those securities to participants when benefits are paid.<a href="#_ftn1" name="_ftnref1">¹</a>Stock bonus plans can be funded through an employer&rsquo;s contribution of employer securities, cash, or both. Traditionally, the IRS has taken the position that the distribution must be in the form of employer stock (except for the value of a fractional share).<a href="#_ftn2" name="_ftnref2">²</a> The Tax Court has agreed with the IRS position.<a href="#_ftn3" name="_ftnref3">³</a> A stock bonus plan may provide for payment of benefits in cash if certain conditions are met (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8917">8917</a>). For the purpose of allocating contributions and distributing benefits, the plan is subject to the same requirements as a profit sharing plan.<br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.Treas. Reg. &sect; 1.401-1(a)(2)(iii).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.Rev. Rul. 7156, 1971-1 CB 118.<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.<em>Miller v. Comm.</em>, 76 TC 433 (1981).<br /> <br /> </div></div><br />

<div class="Section1">Until 2002, an employer who maintained an Educational Assistance Program under IRC Section 127 was required to file an information return (Schedule F to the Form 5500) for each year that the program is in effect. The information return had to include the number of employees currently working, the number of employees eligible to participate in the plan, the number of employees actually participating, the total plan cost, and the number of highly compensated employees. In addition, the employer was required to identify itself and state the type of business in which it is engaged.<a href="#_ftn1" name="_ftnref1">¹</a>Notice 20024, however, suspended these reporting requirements with respect to EAPs and certain other employee fringe benefits. Employers are relieved of the obligation to file under Section 6039D until the IRS provides further notice.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> Notice 20024 superseded Notice 904, which exempted plans under Section 127 from furnishing the additional information concerning highly compensated employees that was required by the TRA &rsquo;86 amendments to Section 6039D.<br /> <br /> This reporting relief applies to any plan year that begins prior to the issuance of further guidance on this subject by the IRS.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.IRC &sect; 6039D.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.2002-16 IRB 785.<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.Notice 904, 1990-1 CB 355.<br /> <br /> </div></div><br />