By: Jay Mittelman
To attract and retain qualified people, employers must provide desirable working conditions and competitive salaries and benefit packages.
Pretax benefits — such as traditional 401(k) plans and Section 125 health benefit plans — have been shown to improve attraction and retention rates. With pretax benefits, employees’ contributions or payments are subtracted from their wages before taxes are withheld, resulting in tax savings.
As an attraction and retention strategy, taxable benefits may not be as powerful as pretax benefits because they do not lead to tax savings at the time of withholding. But taxable benefits can help move the needle. Below are six taxable benefits to consider:
Under the Tax Cuts and Jobs Act, employers can still offer qualified transportation benefits for transit, parking and vanpooling on a tax-free basis — up to $270 per month in 2020. Anything over the monthly limit is taxable. Until 2018, employers could offer a maximum of $20 per month tax free to employees who commuted to work via bicycle. From 2018 to 2025, the bicycle commuting benefit is no longer tax free.
Prior to 2018, employers could reimburse employees on a tax-free basis for job relocation expenses of over 50 miles. However, the TCJA makes job relocation reimbursements of over 50 miles taxable from 2018 through 2025. Reimbursements for employee moving expenses of less than 50 miles are taxable as well.
Cash prizes and awards presented to employees for their accomplishments are taxable. Noncash prizes and awards are also taxable — unless considered to be “de minimis” fringe benefits under IRS rules. The fair market value of noncash prizes and awards should be used for tax-withholding purposes.
Employers can provide tax-free educational benefits of up to $5,250 for undergraduate and graduate-level courses. Employees must pay taxes on amounts exceeding that. Some employers offer student loan repayment assistance, which is currently taxable to employees.
If you reimburse employees for driving their own vehicle for company-related reasons, any amounts that exceed the IRS’s standard mileage rate are taxable income.
If you offer group term life insurance under a Section 125 plan, only the first $50,000 of coverage is tax free. Even though amounts over $50,000 are taxable, your employees may welcome the extra coverage.
These six taxable benefits don’t guarantee a win in the race for talent, but they may give you an advantage over competitors that don’t provide them.