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Unit 10: Tax Consideration in Specific Managerial Decisions

10.3.3 An Overview of the Possible Fringe Benefi t Options Notes

While there are limitations, compliance issues, and non-discrimination rules that can vary

according to the particular fringe benefits being set up and the type of business structure you
have, it’s important to get an idea of the major fringe benefits that may be available.

The following list gives a brief synopsis of the main ones:

(i) Health & Accident Insurance: The cost of this tax-free benefit for employees, their spouses
and dependents may be deducted by the business.
(ii) Life Insurance: Certain other types of life insurance arrangements may be set up with some
limited tax-free or tax-deferred benefi ts.
(iii) Disability Insurance: The premiums paid by the business for the policy are a tax-free
benefit to employee.

(iv) Conditional Meals & Lodging: If meals provided to employee on business premises, and
lodging provided as a condition of employment–both for the employer’s convenience–
these are tax-free to the employee. Business deducts the full cost of lodging, and 50% of the
cost of meals.

(v) Qualified Retirement Plan: Contributions made by employer and/or employee may be
deducted. Various limitations on amount of contributions depending on type of plans and
participation percentages.
(vi) Working Condition Fringes: If primarily for benefit of employment conditions, tax-free to

employee.

Example: Parking costs, professional association dues, business publications, business
equipment(including computers, telephones, etc.) for required use at home, entertainment and
travel/transportation expenses, convention expenses, required qualifi ed office in home expense

reimbursement, etc.
(vii) Vehicle Expenses: Cost of vehicle used for business purposes and/or as required by
employer for business use may be tax-free to employee and deductible by business.
(viii) Transportation Benefi ts: Qualified commuter transportation expense, transit passes,

commuter parking costs may be tax-free to recipient.
(ix) On-premises facilities: Eating facilities, day-care facilities, and athletic facilities available
to all employees can be provided tax-free.

(x) Outplacement Assistance: This can be a very valuable fringe to a terminated employee.

Costs associated with finding another job may be fully tax-free: secretarial services, use of
business facilities, counselling and resume services, etc.
(xi) Moving Expense Reimbursements: Subject to various dollar cost limitations, certain costs

associated with a qualified job-related move would be tax-free to employee and tax-
deductible by the business.
(xii) Spousal Travel Costs: If the business requires an employee’s spouse to travel with the
employee for business purposes, these costs can be paid by the business and not taxable to
employee.
(xiii) Interest Rate Advantaged Loans: If set up properly, employee can get lower rate loans (in
some cases NO interest charges) than on the outside without paying taxes on the differential
costs.

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