As a general rule, gross income includes all compensation and employment benefits unless exclusion is provided by law. Cafeteria plan and certain other fringe benefits are among the items that could be excluded from employees' taxable income. Below are some common fringe benefits excludible from an employee's taxable income if certain conditions are met.
A working condition fringe benefit is not included in gross income, as provided under Internal Revenue Code (IRC) section 132(a)(3). A product or service provided by an employer to an employee would qualify as working condition fringe benefit if all the following requirements are met:
De minimis fringe benefit provided by an employer to an employee is not included in the employee's gross income. As defined under IRC section 132(e)(1), the term de minimis fringe means any property or service the value of which is (after taking into account the frequency with which the employer provides similar fringes to the employer's employees) so small as to make accounting for it unreasonable or administratively impracticable.
Examples of benefits excludable as de minimis fringe benefits:
Examples of benefits not excludable as de minimis fringe benefits (but could be considered under other statutory provisions such as working condition fringes):
Under Reg. 1.62-2(c)(4), amounts treated as paid under an accountable plan are excluded from the employee's gross income, are not reported as wages or other compensation on the employee's Form W-2, and are exempt from the withholding and payment of employment taxes. For a reimbursement or other expense allowance arrangement to qualify as an accountable plan, all the following requirements must be met:
Work clothes/uniform allowance or reimbursement could be excluded from an employee's gross income if it meets accountable plan rules. In addition, work clothes or uniforms must:
If the clothing qualifies as excludable, then reimbursements for the cleaning costs are also excludable.
Similar to work clothes or uniforms, safety equipment allowances or reimbursement could also be excluded from an employee's gross income if it meets accountable plan rules. However, the equipment doesn't need to be required by the employer. Common examples include hardhat, anti-glare screen for computer, or safety shoes.
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