For the latest information about developments related to Pub. 15-B, such as legislation enacted after it was published, go to IRS.gov/Pub15B. For the latest guidance and information about COVID-19 tax relief, go to IRS.gov/Coronavirus.
Cents-per-mile rule. The business mileage rate for 2024 is 67 cents per mile. You may use this rate to reimburse an employee for business use of a personal vehicle, and under certain conditions, you may use the rate under the cents-per-mile rule to value the personal use of a vehicle you provide to an employee. See Cents-Per-Mile Rule in section 3.
Qualified parking exclusion and commuter transportation benefit. For 2024, the monthly exclusion for qualified parking is $315 and the monthly exclusion for commuter highway vehicle transportation and transit passes is $315. See Qualified Transportation Benefits in section 2.
Contribution limit on a health flexible spending arrangement (FSA). For plan years beginning in 2024, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $3,200.
Moving expense reimbursements. P.L. 115-97, Tax Cuts and Jobs Act, suspends the exclusion for qualified moving expense reimbursements from your employee's income for tax years beginning after 2017 and before 2026. However, the exclusion is still available in the case of a member of the U.S. Armed Forces on active duty who moves because of a permanent change of station due to a military order. The exclusion applies only to reimbursement of moving expenses that the member could deduct if they had paid or incurred them without reimbursement. See Moving Expenses in Pub. 3, Armed Forces' Tax Guide, for the definition of what constitutes a permanent change of station and to learn which moving expenses are deductible.
Bicycle commuting reimbursements. P.L. 115-97 suspends the exclusion of qualified bicycle commuting reimbursements from your employee's income for tax years beginning after 2017 and before 2026. See Transportation (Commuting) Benefits in section 2.
Withholding on supplemental wages. P.L. 115-97 lowered the federal income tax withholding rates on supplemental wages for tax years beginning after 2017 and before 2026. See Withholding and depositing taxes in section 4 for the withholding rates.
Form 1099-NEC, Nonemployee Compensation. Use Form 1099-NEC to report nonemployee compensation paid in 2023. The 2023 Form 1099-NEC is due January 31, 2024.
Additional permitted election changes for health coverage under a cafeteria plan. Notice 2014-55, 2014-41 I.R.B. 672, available at IRS.gov/irb/2014-41_IRB#NOT-2014-55, expands the application of the permitted change rules for health coverage under a cafeteria plan and discusses two specific situations in which a cafeteria plan participant is permitted to revoke their election under a cafeteria plan during a period of coverage.
Definition of marriage. A marriage of two individuals is recognized for federal tax purposes if the marriage is recognized by the state or territory of the United States in which the marriage is entered into, regardless of legal residence. Two individuals who enter into a relationship that is denominated as a marriage under the laws of a foreign jurisdiction are recognized as married for federal tax purposes if the relationship would be recognized as a marriage under the laws of at least one state or territory of the United States, regardless of legal residence. Individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that isn't denominated as a marriage under the law of the state or territory of the United States where such relationship was entered into aren't lawfully married for federal tax purposes, regardless of legal residence. Notice 2014-1 discusses how certain rules for cafeteria plans, including health and dependent care FSAs, and health savings accounts (HSAs) apply to same-sex spouses participating in employee benefit plans. Notice 2014-1, 2014-2 I.R.B. 270, is available at IRS.gov/irb/2014-02_IRB#NOT-2014-1.
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This publication supplements Pub. 15, Employer's Tax Guide, and Pub. 15-A, Employer's Supplemental Tax Guide. It contains information for employers on the employment tax treatment of fringe benefits.
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A fringe benefit is a form of pay for the performance of services. For example, you provide an employee with a fringe benefit when you allow the employee to use a business vehicle to commute to and from work.
Performance of services.
A person who performs services for you doesn't have to be your employee. A person may perform services for you as an independent contractor, partner, or director. Also, for fringe benefit purposes, treat a person who agrees not to perform services (such as under a covenant not to compete) as performing services.
Provider of benefit.
You’re the provider of a fringe benefit if it is provided for services performed for you. You’re considered the provider of a fringe benefit even if a third party, such as your client or customer, provides the benefit to your employee for services the employee performs for you. For example, if, in exchange for goods or services, your customer provides daycare services as a fringe benefit to your employees for services they provide for you as their employer, then you’re the provider of this fringe benefit even though the customer is actually providing the daycare.
Recipient of benefit.
The person who performs services for you is considered the recipient of a fringe benefit provided for those services. That person may be considered the recipient even if the benefit is provided to someone who didn't perform services for you. For example, your employee may be the recipient of a fringe benefit you provide to a member of the employee's family.
Any fringe benefit you provide is taxable and must be included in the recipient's pay unless the law specifically excludes it. Section 2 discusses the exclusions that apply to certain fringe benefits. Any benefit not excluded under the rules discussed in section 2 is taxable.
Including taxable benefits in pay.
You must include in a recipient's pay the amount by which the value of a fringe benefit is more than the sum of the following amounts.
If the recipient of a taxable fringe benefit is your employee, the benefit is generally subject to employment taxes and must be reported on Form W-2, Wage and Tax Statement. However, you can use special rules to withhold, deposit, and report the employment taxes. These rules are discussed in section 4.
If the recipient of a taxable fringe benefit isn't your employee, the benefit isn't subject to employment taxes. However, you may have to report the benefit on one of the following information returns.
| IF the recipient receives the benefit as. | THEN use. |
| an independent contractor | Form 1099-NEC. |
| a partner | Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. |
A cafeteria plan, including an FSA, provides participants an opportunity to receive qualified benefits on a pre-tax basis. It is a written plan that allows your employees to choose between receiving cash or taxable benefits, instead of certain qualified benefits for which the law provides an exclusion from wages. If an employee chooses to receive a qualified benefit under the plan, the fact that the employee could have received cash or a taxable benefit instead won't make the qualified benefit taxable.
Generally, a cafeteria plan doesn't include any plan that offers a benefit that defers pay. However, a cafeteria plan can include a qualified 401(k) plan as a benefit. Also, certain life insurance plans maintained by educational institutions can be offered as a benefit even though they defer pay.
Qualified benefits.
A cafeteria plan can include the following benefits discussed in section 2.
Benefits not allowed.
A cafeteria plan can't include the following benefits discussed in section 2.
It also can't include scholarships or fellowships (discussed in Pub. 970).
Contribution limit on a health FSA.
For plan years beginning in 2024, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $3,200.
A cafeteria plan that doesn't limit health FSA contributions to the dollar limit isn't a cafeteria plan and all benefits offered under the plan are includible in the employee's gross income.
For more information, see Notice 2012-40, 2012-26 I.R.B. 1046, available at IRS.gov/irb/2012-26_IRB#NOT-2012-40.
“Use-or-lose” rule for health FSAs.
Instead of a grace period, you may, at your option, amend your cafeteria plan to allow an employee's unused contributions to carry over to the immediately following plan year. For more information, see Notice 2013-71, 2013-47 I.R.B. 532, available at IRS.gov/irb/2013-47_IRB#NOT-2013-71; and Notice 2020-33, 2020-22 I.R.B. 868, available at IRS.gov/irb/2020-22_IRB#NOT-2020-33.
Employee.
For these plans, treat the following individuals as employees.
Exception for S corporation shareholders.
Don't treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder for this purpose is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but don't treat the benefit as a reduction in distributions to the 2% shareholder. For more information, see Revenue Ruling 91-26, 1991-1 C.B. 184.
Plans that favor highly compensated employees.
If your plan favors highly compensated employees as to eligibility to participate, contributions, or benefits, you must include in their wages the value of taxable benefits they could have selected. A plan you maintain under a collective bargaining agreement doesn't favor highly compensated employees.
A highly compensated employee for this purpose is any of the following employees.
Plans that favor key employees.
If your plan favors key employees, you must include in their wages the value of taxable benefits they could have selected. A plan favors key employees if more than 25% of the total of the nontaxable benefits you provide for all employees under the plan go to key employees. However, a plan you maintain under a collective bargaining agreement doesn't favor key employees.
A key employee during 2024 is generally an employee who is either of the following.
Eligible employers meeting contribution requirements and eligibility and participation requirements can establish a simple cafeteria plan. Simple cafeteria plans are treated as meeting the nondiscrimination requirements of a cafeteria plan and certain benefits under a cafeteria plan.
Eligible employer.
You’re an eligible employer if you employed an average of 100 or fewer employees during either of the 2 preceding years. If your business wasn't in existence throughout the preceding year, you’re eligible if you reasonably expect to employ an average of 100 or fewer employees in the current year. If you establish a simple cafeteria plan in a year that you employ an average of 100 or fewer employees, you’re considered an eligible employer for any subsequent year until the year after you employ an average of 200 or more employees.
Eligibility and participation requirements.
These requirements are met if all employees who had at least 1,000 hours of service for the preceding plan year are eligible to participate and each employee eligible to participate in the plan may elect any benefit available under the plan. You may elect to exclude from the plan employees who:
Contribution requirements.
You must make a contribution to provide qualified benefits on behalf of each qualified employee in an amount equal to:
If the contribution requirements are met using option (2), the rate of contribution to any salary reduction contribution of a highly compensated or key employee can't be greater than the rate of contribution to any other employee.
More information.
For more information about cafeteria plans, see section 125 of the Internal Revenue Code and its regulations.
This section discusses the exclusion rules that apply to fringe benefits. These rules exclude all or part of the value of certain benefits from the recipient's pay.
In most cases, the excluded benefits aren't subject to federal income tax withholding, social security tax, Medicare tax, federal unemployment (FUTA) tax, or Railroad Retirement Tax Act (RRTA) taxes and aren't reported on Form W-2.
This section discusses the exclusion rules for the following fringe benefits.
See Table 2-1 for an overview of the employment tax treatment of these benefits.
| Treatment Under Employment Taxes | |||
|---|---|---|---|
| Type of Fringe Benefit | Income Tax Withholding | Social Security and Medicare (including Additional Medicare Tax when wages are paid in excess of $200,000) 1 | Federal Unemployment (FUTA) |
| Accident and health benefits | Exempt (except 2% shareholder-employees of S corporations). | Exempt | Exempt |
| Achievement awards | Exempt 2 up to $1,600 for qualified plan awards ($400 for nonqualified awards). | ||
| Adoption assistance | Exempt 2,3 | Taxable | Taxable |
| Athletic facilities | Exempt if substantially all use during the calendar year is by employees, their spouses, and their dependent children, and the facility is operated by the employer on premises owned or leased by the employer. | ||
| De minimis (minimal) benefits | Exempt | Exempt | Exempt |
| Dependent care assistance | Exempt 3 up to certain limits, $5,000 ($2,500 for married employee filing separate return). | ||
| Educational assistance | Exempt up to $5,250 of benefits each year. (See Educational Assistance , later in this section.) | ||
| Employee discounts | Exempt 3 up to certain limits. (See Employee Discounts , later in this section.) | ||
| Employee stock options | See Employee Stock Options , later in this section. | ||
| Employer-provided cell phones | Exempt if provided primarily for noncompensatory business purposes. | ||
| Group-term life insurance coverage | Exempt | Exempt 2,4,6 up to cost of $50,000 of coverage. (Special rules apply to former employees.) | Exempt |
| Health savings accounts (HSAs) | Exempt for qualified individuals up to the HSA contribution limits. (See Health Savings Accounts , later in this section.) | ||
| Lodging on your business premises | Exempt 2 if furnished on your business premises, for your convenience, and as a condition of employment. | ||
| Meals | Exempt 2 if furnished on your business premises for your convenience. | ||
| Exempt if de minimis. | |||
| No-additional-cost services | Exempt 3 | Exempt 3 | Exempt 3 |
| Retirement planning services | Exempt 5 | Exempt 5 | Exempt 5 |
| Transportation (commuting) benefits | Exempt 2 up to certain limits if for rides in a commuter highway vehicle and/or transit passes ($315) or qualified parking ($315). (See Transportation (Commuting) Benefits , later in this section.) | ||
| Exempt if de minimis. | |||
| Tuition reduction | Exempt 3 if for undergraduate education (or graduate education if the employee performs teaching or research activities). | ||
| Working condition benefits | Exempt | Exempt | Exempt |
| 1 Or other railroad retirement taxes, if applicable. | |||
| 2 Exemption doesn't apply to S corporation employees who are 2% shareholders. | |||
| 3 Exemption doesn't apply to certain highly compensated employees under a program that favors those employees. | |||
| 4 Exemption doesn't apply to certain key employees under a plan that favors those employees. | |||
| 5 Exemption doesn't apply to services for tax preparation, accounting, legal, or brokerage services. | |||
| 6 You must include in your employee's wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Also, show it in box 12 with code C. The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax. | |||
This exclusion applies to contributions you make to an accident or health plan for an employee, including the following.
This exclusion also applies to payments you directly or indirectly make to an employee under an accident or health plan for employees that are either of the following.
Accident or health plan.
This is an arrangement that provides benefits for your employees, their spouses, their dependents, and their children (under age 27 at the end of the tax year) in the event of personal injury or sickness. The plan may be insured or noninsured and doesn't need to be in writing.
Employee.
For this exclusion, treat the following individuals as employees.
Special rule for certain government plans.
For certain government accident and health plans, payments to a deceased employee's beneficiary may qualify for the exclusion from gross income if the other requirements for exclusion are met. See section 105(j) for details.
Exception for S corporation shareholders.
Don't treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but don't treat the benefit as a reduction in distributions to the 2% shareholder. For more information, see Revenue Ruling 91-26, 1991-1 C.B. 184.
Exclusion from wages.
You can generally exclude the value of accident or health benefits you provide to an employee from the employee's wages.
Exception for certain long-term care benefits.
You can't exclude contributions to the cost of long-term care insurance from an employee's wages subject to federal income tax withholding if the coverage is provided through a flexible spending or similar arrangement. This is a benefit program that reimburses specified expenses up to a maximum amount that is reasonably available to the employee and is less than five times the total cost of the insurance. However, you can exclude these contributions from the employee's wages subject to social security, Medicare, and FUTA taxes.
S corporation shareholders.
Because you can't treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the value of accident or health benefits you provide to the employee in the employee's wages subject to federal income tax withholding. However, you can exclude the value of these benefits (other than payments for specific injuries or illnesses not made under a plan set up to benefit all employees or certain groups of employees) from the employee's wages subject to social security, Medicare, and FUTA taxes. See Announcement 92-16 for more information. You can find Announcement 92-16 on page 53 of Internal Revenue Bulletin 1992-5.
Exception for highly compensated employees.
If your plan is a self-insured medical reimbursement plan that favors highly compensated employees, you must include all or part of the amounts you pay to these employees in box 1 of Form W-2. However, you can exclude these amounts (other than payments for specific injuries or illnesses not made under a plan set up to benefit all employees or certain groups of employees) from the employee's wages subject to income tax withholding and social security, Medicare, and FUTA taxes.
A self-insured plan is a plan that reimburses your employees for medical expenses not covered by an accident or health insurance policy.
A highly compensated employee for this exception is any of the following individuals.
For more information on this exception, see section 105(h) of the Internal Revenue Code and its regulations.
COBRA premiums.
The exclusion for accident and health benefits applies to amounts you pay to maintain medical coverage for a current or former employee under the Combined Omnibus Budget Reconciliation Act of 1986 (COBRA). The exclusion applies regardless of the length of employment, whether you directly pay the premiums or reimburse the former employee for premiums paid, and whether the employee's separation is permanent or temporary.
Qualified small employer health reimbursement arrangements (QSEHRAs).
QSEHRAs allow eligible small employers to pay or reimburse medical care expenses, including health insurance premiums, of eligible employees and their family members. A QSEHRA isn’t a group health plan, and, therefore, isn't subject to group health plan requirements. Generally, payments from a QSEHRA to reimburse an eligible employee’s medical expenses aren’t includible in the employee’s gross income if the employee has coverage that provides minimum essential coverage, as defined in section 5000A(f) of the Internal Revenue Code.
A QSEHRA is an arrangement that meets all the following requirements.
Eligible employer.
To be an eligible employer, you must not be an applicable large employer, which is defined as an employer that generally employed at least 50 full‐time employees, including full‐time equivalent employees, in the prior calendar year. You must also not offer a group health plan (including a health reimbursement arrangement (HRA) or a health FSA) to any of your employees. For more information about the Affordable Care Act and group health plan requirements, go to IRS.gov/ACA. For more information about QSEHRAs, including information about the requirement to give a written notice to each eligible employee, see Notice 2017‐67, 2017-47 I.R.B. 517, available at IRS.gov/irb/2017-47_IRB#NOT-2017-67.
Reporting requirements.
You must report in box 12 of Form W‐2 using code FF the amount of payments and reimbursements that your employee is entitled to receive from the QSEHRA for the calendar year without regard to the amount of payments or reimbursements actually received. For example, if your QSEHRA provides a permitted benefit of $3,000 and your employee receives reimbursements of $2,000, on Form W‐2, you would report a permitted benefit of $3,000 in box 12 using code FF.
This exclusion applies to the value of any tangible personal property you give to an employee as an award for either length of service or safety achievement. The exclusion doesn't apply to awards of cash, cash equivalents, gift cards, gift coupons, or gift certificates (other than arrangements granting only the right to select and receive tangible personal property from a limited assortment of items preselected or preapproved by you). The exclusion also doesn't apply to vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, other securities, and other similar items. An achievement award must meet all the following requirements.
Employee.
For this exclusion, treat the following individuals as employees.
Exception for S corporation shareholders.
Don't treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but don't treat the benefit as a reduction in distributions to the 2% shareholder. For more information, see Revenue Ruling 91-26, 1991-1 C.B. 184.
Exclusion from wages.
You can generally exclude the value of achievement awards you give to an employee from the employee's wages if their cost isn't more than the amount you can deduct as a business expense for the year. The excludable annual amount is $1,600 ($400 for awards that aren't “qualified plan awards”).
Deduction limit.
Your deduction for the cost of employee achievement awards given to any one employee during the tax year is limited to the following.
A qualified plan award is an achievement award given as part of an established written plan or program that doesn't favor highly compensated employees as to eligibility or benefits.
A highly compensated employee is an employee who meets either of the following tests.
You can choose to ignore test (2) if the employee wasn't also in the top 20% of employees when ranked by pay for the preceding year.
An award isn't a qualified plan award if the average cost of all the employee achievement awards given during the tax year (that would be qualified plan awards except for this limit) is more than $400. To figure this average cost, ignore awards of nominal value.
Deduct achievement awards, up to the maximum amounts listed earlier, as a nonwage business expense on your return or business schedule.
. To determine for 2024 whether an achievement award is a “qualified plan award” under the deduction rules described under Deduction limit above, treat any employee who received more than $150,000 in pay for 2023 as a highly compensated employee. .
If the cost of awards given to an employee is more than your allowable deduction, include in the employee's wages the larger of the following amounts.
An adoption assistance program is a separate written plan of an employer that meets all of the following requirements.
For this exclusion, a highly compensated employee for 2024 is an employee who meets either of the following tests.
You can choose to ignore test (2) if the employee wasn't also in the top 20% of employees when ranked by pay for the preceding year.
You must exclude all payments or reimbursements you make under an adoption assistance program for an employee's qualified adoption expenses from the employee's wages subject to federal income tax withholding. However, you can't exclude these payments from wages subject to social security, Medicare, and FUTA taxes.
You must report all qualifying adoption expenses you paid or reimbursed under your adoption assistance program for each employee for the year in box 12 of the employee's Form W-2. Report all amounts including those in excess of the $16,810 exclusion for 2024. Use code T to identify this amount.
Exception for S corporation shareholders.
For this exclusion, don't treat a 2% shareholder of an S corporation as an employee of the corporation. A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but don't treat the benefit as a reduction in distributions to the 2% shareholder. For more information, see Revenue Ruling 91-26, 1991-1 C.B. 184.
More information.
For more information on adoption benefits, see Notice 97-9, which is on page 35 of Internal Revenue Bulletin 1997-2 at IRS.gov/pub/irs-irbs/irb97-02.pdf. Advise your employees to see the Instructions for Form 8839.
You can exclude the value of an employee's use of an on-premises gym or other athletic facility you operate from an employee's wages if substantially all use of the facility during the calendar year is by your employees, their spouses, and their dependent children. For this purpose, an employee's dependent child is a child or stepchild who is the employee's dependent or who, if both parents are deceased, hasn't attained the age of 25. The exclusion doesn't apply to any athletic facility if access to the facility is made available to the general public through the sale of memberships, the rental of the facility, or a similar arrangement.
On-premises facility.
The athletic facility must be located on premises you own or lease and must be operated by you. It doesn't have to be located on your business premises. However, the exclusion doesn't apply to an athletic facility that is a facility for residential use, such as athletic facilities that are part of a resort.
Employee.
For this exclusion, treat the following individuals as employees.
You can exclude the value of a de minimis benefit you provide to an employee from the employee's wages. A de minimis benefit is any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable. Cash and cash equivalent fringe benefits (for example, gift certificates, gift cards, and the use of a charge card or credit card), no matter how little, are never excludable as a de minimis benefit. However, meal money and local transportation fare, if provided on an occasional basis and because of overtime work, may be excluded, as discussed later.
Examples of de minimis benefits include the following.
Some examples of benefits that aren’t excludable as de minimis fringe benefits are season tickets to sporting or theatrical events; the commuting use of an employer-provided automobile or other vehicle more than 1 day a month; membership in a private country club or athletic facility, regardless of the frequency with which the employee uses the facility; and use of employer-owned or -leased facilities (such as an apartment, hunting lodge, boat, etc.) for a weekend. If a benefit provided to an employee doesn't qualify as de minimis (for example, the frequency exceeds a limit described earlier), then generally the entire benefit must be included in income.
Employee.
For this exclusion, treat any recipient of a de minimis benefit as an employee.
This exclusion applies to household and dependent care services you directly or indirectly pay for or provide to an employee under a written dependent care assistance program (DCAP) that covers only your employees. The services must be for a qualifying person's care and must be provided to allow the employee to work. These requirements are basically the same as the tests the employee would have to meet to claim the dependent care credit if the employee paid for the services. For more information, see Can You Claim the Credit? in Pub. 503.
Employee.
For this exclusion, treat the following individuals as employees.
Exclusion from wages.
You can exclude the value of benefits you provide to an employee under a DCAP from the employee's wages if you reasonably believe that the employee can exclude the benefits from gross income.
An employee can generally exclude from gross income up to $5,000 ($2,500 if married filing separately) of benefits received under a DCAP each year.
However, the exclusion can't be more than the smaller of the earned income of either the employee or employee's spouse. Special rules apply to determine the earned income of a spouse who is either a student or not able to care for themselves. For more information on the earned income limit, see Pub. 503.
Exception for highly compensated employees.
You can't exclude dependent care assistance from the wages of a highly compensated employee unless the benefits provided under the program don't favor highly compensated employees and the program meets the requirements described in section 129(d) of the Internal Revenue Code.
For this exclusion, a highly compensated employee for 2024 is an employee who meets either of the following tests.
You can choose to ignore test (2) if the employee wasn't also in the top 20% of employees when ranked by pay for the preceding year.
Form W-2.
Report the value of all dependent care assistance you provide to an employee under a DCAP in box 10 of the employee's Form W-2. Include any amounts you can't exclude from the employee's wages in boxes 1, 3, and 5. Report in box 10 both the nontaxable portion of assistance (up to $5,000) and any assistance above that amount that is taxable to the employee.
Example.
Oak Co. provides a dependent care assistance FSA to its employees through a cafeteria plan. In addition, it provides occasional on-site dependent care to its employees at no cost. Emily, an employee of Oak Co., had $4,500 deducted from her pay for the dependent care FSA. In addition, Emily used the on-site dependent care several times. The FMV of the on-site care was $700. Emily's Form W-2 should report $5,200 of dependent care assistance in box 10 ($4,500 FSA plus $700 on-site dependent care). Boxes 1, 3, and 5 should include $200 (the amount in excess of the nontaxable assistance), and applicable taxes should be withheld on that amount.
This exclusion applies to educational assistance you provide to employees under an educational assistance program. The exclusion also applies to graduate-level courses.
Educational assistance means amounts you pay or incur for your employees' education expenses. These expenses generally include the cost of books, equipment, fees, supplies, and tuition. However, these expenses don't include the cost of a course or other education involving sports, games, or hobbies, unless the education:
Education expenses don't include the cost of tools or supplies (other than textbooks) your employee is allowed to keep at the end of the course. Nor do they include the cost of lodging, meals, or transportation. Your employee must be able to provide substantiation to you that the educational assistance provided was used for qualifying education expenses.
Exclusion for employer payments of student loans.
Employer-provided educational assistance benefits include payments made after March 27, 2020, and before January 1, 2026, whether paid to the employee or to a lender, of principal or interest on any qualified education loan incurred by the employee for education of the employee. Qualified education loans are defined in chapter 10 of Pub. 970.
Educational assistance program.
An educational assistance program is a separate written plan that provides educational assistance only to your employees. The program qualifies only if all of the following tests are met.
For this exclusion, a highly compensated employee for 2024 is an employee who meets either of the following tests.
You can choose to ignore test (2) if the employee wasn't also in the top 20% of employees when ranked by pay for the preceding year.
Employee.
For this exclusion, treat the following individuals as employees.
Exclusion from wages.
You can exclude up to $5,250 of educational assistance you provide to an employee under an educational assistance program from the employee's wages each year.
Assistance over $5,250.
If you don't have an educational assistance plan, or you provide an employee with assistance exceeding $5,250, you must include the value of these benefits as wages, unless the benefits are working condition benefits. Working condition benefits may be excluded from wages. Property or a service provided is a working condition benefit to the extent that if the employee paid for it, the amount paid would have been allowable as a business or depreciation expense. See Working Condition Benefits , later in this section.
This exclusion applies to a price reduction you give your employee on property or services you offer to customers in the ordinary course of the line of business in which the employee performs substantial services. It applies whether the property or service is provided at no charge (in which case only part of the discount may be excludable as a qualified employee discount) or at a reduced price. It also applies if the benefit is provided through a partial or total cash rebate.
The benefit may be provided either directly by you or indirectly through a third party. For example, an employee of an appliance manufacturer may receive a qualified employee discount on the manufacturer's appliances purchased at a retail store that offers the appliances for sale to customers.
Employee discounts don't apply to discounts on real property or discounts on personal property of a kind commonly held for investment (such as stocks or bonds). They also don't include discounts on a line of business of the employer for which the employee doesn't provide substantial services, or discounts on property or services of a kind that aren't offered for sale to customers. Therefore, discounts on items sold in an employee store that aren't sold to customers aren't excluded from employee income. Also, employee discounts provided by another employer through a reciprocal agreement aren't excluded.
Employee.
For this exclusion, treat the following individuals as employees.
Treat discounts you provide to the spouse or dependent child of an employee as provided to the employee. For this fringe benefit, dependent child is a child or stepchild who is the employee's dependent or who, if both parents are deceased, hasn't attained the age of 25. Treat a child of divorced parents as a dependent of both parents.
Exclusion from wages.
You can generally exclude the value of an employee discount you provide an employee from the employee's wages, up to the following limits.
Generally, determine your gross profit percentage in the line of business based on all property you offer to customers (including employee customers) and your experience during the tax year immediately before the tax year in which the discount is available. To figure your gross profit percentage, subtract the total cost of the property from the total sales price of the property and divide the result by the total sales price of the property. Employers that are in their first year of existence may estimate their gross profit percentage based on its mark-up from cost or refer to an appropriate industry average. If substantial changes in an employer's business indicate at any time that it is inappropriate for the prior year's gross profit percentage to be used for the current year, the employer must, within a reasonable period, redetermine the gross profit percentage for the remaining portion of the current year as if such portion of the year were the first year of the employer's existence.
Exception for highly compensated employees.
You can't exclude from the wages of a highly compensated employee any part of the value of a discount that isn't available on the same terms to one of the following groups.
For this exclusion, a highly compensated employee for 2024 is an employee who meets either of the following tests.
You can choose to ignore test (2) if the employee wasn't also in the top 20% of employees when ranked by pay for the preceding year.
There are three kinds of stock options—incentive stock options, employee stock purchase plan options, and nonstatutory (nonqualified) stock options.
Wages for social security, Medicare, and FUTA taxes don't include remuneration resulting from the exercise of an incentive stock option or an employee stock purchase plan option, or from any disposition of stock acquired by exercising such an option.
Additionally, federal income tax withholding isn't required on the income resulting from a disqualifying disposition of stock acquired by the exercise of an incentive stock option or an employee stock purchase plan option, or on income equal to the discount portion of stock acquired by the exercise of an employee stock purchase plan option resulting from any qualifying disposition of the stock. The employer must report as income in box 1 of Form W-2 (a) the discount portion of stock acquired by the exercise of an employee stock purchase plan option upon a qualifying disposition of the stock, and (b) the spread (between the exercise price and the FMV of the stock at the time of exercise) upon a disqualifying disposition of stock acquired by the exercise of an incentive stock option or an employee stock purchase plan option.
An employer must report the excess of the FMV of stock received upon exercise of a nonstatutory stock option over the amount paid for the stock option on Form W-2 in boxes 1, 3 (up to the social security wage base), and 5, and in box 12 using the code V. See Regulations section 1.83-7.
An employee who transfers their interest in nonstatutory stock options to the employee's former spouse incident to a divorce isn't required to include an amount in gross income upon the transfer. The former spouse, rather than the employee, is required to include an amount in gross income when the former spouse exercises the stock options. See Revenue Ruling 2002-22 and Revenue Ruling 2004-60 for details. You can find Revenue Ruling 2002-22 on page 849 of Internal Revenue Bulletin 2002-19 at IRS.gov/pub/irs-irbs/irb02-19.pdf. Revenue Ruling 2004-60, 2004-24 I.R.B. 1051, is available at IRS.gov/irb/2004-24_IRB#RR-2004-60.
Employee stock options aren't subject to Railroad Retirement Tax.
In Wisconsin Central Ltd. v. United States , 138 S. Ct. 2067, the U. S. Supreme Court ruled that employee stock options (whether statutory or nonstatutory) aren't “money remuneration” subject to the RRTA. If you're a railroad employer, don't withhold Tier 1 and Tier 2 taxes on compensation from railroad employees covered by the RRTA exercising such options. You must still withhold federal income tax on taxable compensation from railroad employees exercising their options.
Section 83(i) election to defer income on equity grants.
Under section 83(i) of the Internal Revenue Code, qualified employees who are granted stock options or restricted stock units (RSUs) and who later receive stock upon exercise of the option or upon settlement of the RSU (qualified stock) may elect to defer the recognition of income for up to 5 years if the corporation's stock wasn’t readily tradable on an established securities market during any prior calendar year, if the corporation has a written plan under which not less than 80% of all U.S. employees are granted options or RSUs with the same rights and privileges to receive qualified stock, and if certain other requirements are met. An election under section 83(i) applies only for federal income tax purposes. The election has no effect on the application of social security, Medicare, and FUTA taxes. For federal income tax purposes, the employer must withhold federal income tax at 37% in the tax year that the amount deferred is included in the employee's income. If a section 83(i) election is made for an option exercise, that option will not be considered an incentive stock option or an option granted pursuant to an employee stock purchase plan. These rules apply to stock attributable to options exercised, or RSUs settled, after December 31, 2017. For more information, see section 83(i); and Notice 2018-97, 2018-52 I.R.B. 1062, available at IRS.gov/irb/2018-52_IRB#NOT-2018-97.
Reporting requirements.
For each employee, you must report in box 12 of Form W-2 using code GG the amount included in income in the calendar year from qualified equity grants under section 83(i). You must also report in box 12 using code HH the total amount of income deferred under section 83(i) determined as of the close of the calendar year.
More information.
For more information about employee stock options, see sections 83, 421, 422, and 423 of the Internal Revenue Code and their related regulations.
The value of the business use of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a working condition fringe benefit. Personal use of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a de minimis fringe benefit. The term “cell phone” also includes other similar telecommunications equipment. For the rules relating to these types of benefits, see De Minimis (Minimal) Benefits , earlier in this section, and Working Condition Benefits , later in this section.
Noncompensatory business purposes.
You provide a cell phone primarily for noncompensatory business purposes if there are substantial business reasons for providing the cell phone. Examples of substantial business reasons include the employer's:
Cell phones provided to promote goodwill, boost morale, or attract prospective employees.
You can't exclude from an employee's wages the value of a cell phone provided to promote goodwill of an employee, to attract a prospective employee, or as a means of providing additional compensation to an employee.
Additional information.
For additional information on the tax treatment of employer-provided cell phones, see Notice 2011-72, 2011-38 I.R.B. 407, available at
IRS.gov/irb/2011-38_IRB#NOT-2011-72.
This exclusion applies to life insurance coverage that meets all the following conditions.
Group-term life insurance doesn't include the following insurance.
Employee.
For this exclusion, treat the following individuals as employees.
Exception for S corporation shareholders.
Don't treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but don't treat the benefit as a reduction in distributions to the 2% shareholder. For more information, see Revenue Ruling 91-26, 1991-1 C.B. 184.
The 10-employee rule.
Generally, life insurance isn't group-term life insurance unless you provide it at some time during the calendar year to at least 10 full-time employees.
For this rule and the first exception discussed next, count employees who choose not to receive the insurance as if they do receive insurance, unless, to receive it, they must contribute to the cost of benefits other than the group-term life insurance. For example, count an employee who could receive insurance by paying part of the cost, even if that employee chooses not to receive it. However, don't count an employee who chooses not to receive insurance if the employee must pay part or all of the cost of permanent benefits in order to obtain group-term life insurance. A permanent benefit is an economic value extending beyond 1 policy year (for example, a paid-up or cash-surrender value) that is provided under a life insurance policy.
Exceptions.
Even if you don't meet the 10-employee rule, two exceptions allow you to treat insurance as group-term life insurance.
Under the first exception, you don't have to meet the 10-employee rule if all the following conditions are met.
Under the second exception, you don't have to meet the 10-employee rule if all the following conditions are met.
To apply either exception, don't consider employees who were denied insurance for any of the following reasons.
Exclusion from wages.
You can generally exclude the cost of up to $50,000 of group-term life insurance coverage from the wages of an insured employee. You can exclude the same amount from the employee's wages when figuring social security and Medicare taxes. In addition, you don't have to withhold federal income tax or pay FUTA tax on any group-term life insurance you provide to an employee.
Coverage over the limit.
You must include in your employee's wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Also, show it in box 12 with code C. The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax.
Figure the monthly cost of the insurance to include in the employee's wages by multiplying the number of thousands of dollars of all insurance coverage over $50,000 (figured to the nearest $100) by the cost shown in Table 2-2. For all coverage provided within the calendar year, use the employee's age on the last day of the employee's tax year. You must prorate the cost from the table if less than a full month of coverage is involved.
Table 2-2. Cost Per $1,000 of Protection for 1 Month
| Age | Cost |
| Under 25 | $ 0.05 |
| 25 through 29 | 0.06 |
| 30 through 34 | 0.08 |
| 35 through 39 | 0.09 |
| 40 through 44 | 0.10 |
| 45 through 49 | 0.15 |
| 50 through 54 | 0.23 |
| 55 through 59 | 0.43 |
| 60 through 64 | 0.66 |
| 65 through 69 | 1.27 |
| 70 and older | 2.06 |
You figure the total cost to include in the employee's wages by multiplying the monthly cost by the number of months' coverage at that cost.
Example.
Tom's employer provides Tom with group-term life insurance coverage of $200,000. Tom is 45 years old, isn't a key employee, and pays $100 per year toward the cost of the insurance. Tom's employer must include $170 in Tom’s wages. The $200,000 of insurance coverage is reduced by $50,000. The yearly cost of $150,000 of coverage is $270 ($0.15 x 150 x 12), and is reduced by the $100 Tom pays for the insurance. The employer includes $170 in boxes 1, 3, and 5 of Tom's Form W-2. The employer also enters $170 in box 12 with code C.
Coverage for dependents.
Group-term life insurance coverage paid by the employer for the spouse or dependents of an employee may be excludable from income as a de minimis fringe benefit if the face amount isn't more than $2,000. If the face amount is greater than $2,000, the dependent coverage may be excludable from income as a de minimis fringe benefit if the excess (if any) of the cost of insurance over the amount the employee paid for it on an after-tax basis is so small that accounting for it is unreasonable or administratively impracticable.
Former employees.
When group-term life insurance over $50,000 is provided to an employee (including retirees) after their termination, the employee share of social security and Medicare taxes on that period of coverage is paid by the former employee with their tax return and isn't collected by the employer. You’re not required to collect those taxes. You must, however, pay the employer share of social security and Medicare taxes. Use Table 2-2 to determine the amount of additional income that is subject to social security and Medicare taxes for coverage provided after separation from service. Report the uncollected amounts separately in box 12 of Form W-2 using codes M and N. See the General Instructions for Forms W-2 and W-3 and the instructions for your employment tax return.
Exception for key employees.
Generally, if your group-term life insurance plan favors key employees as to participation or benefits, you must include the entire cost of the insurance in your key employees' wages. This exception generally doesn't apply to church plans. When figuring social security and Medicare taxes, you must also include the entire cost in the employees' wages. Include the cost in boxes 1, 3, and 5 of Form W-2. However, you don't have to withhold federal income tax or pay FUTA tax on the cost of any group-term life insurance you provide to an employee.
For this purpose, the cost of the insurance is the greater of the following amounts.
For this exclusion, a key employee during 2024 is an employee or former employee who is one of the following individuals. See section 416(i) of the Internal Revenue Code for more information.
A former employee who was a key employee upon retirement or separation from service is also a key employee.
Your plan doesn't favor key employees as to participation if at least one of the following is true.
Your plan meets this participation test if it is part of a cafeteria plan (discussed earlier in section 1) and it meets the participation test for those plans.
When applying this test, don't consider employees who:
Your plan doesn't favor key employees as to benefits if all benefits available to participating key employees are also available to all other participating employees. Your plan doesn't favor key employees just because the amount of insurance you provide to your employees is uniformly related to their pay.
S corporation shareholders.
Because you can't treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the cost of all group-term life insurance coverage you provide the 2% shareholder in their wages. When figuring social security and Medicare taxes, you must also include the cost of this coverage in the 2% shareholder's wages. Include the cost in boxes 1, 3, and 5 of Form W-2. However, you don't have to withhold federal income tax or pay FUTA tax on the cost of any group-term life insurance coverage you provide to the 2% shareholder.
An HSA is an account owned by a qualified individual who is generally your employee or former employee. Any contributions that you make to an HSA become the employee's property and can't be withdrawn by you. Contributions to the account are used to pay current or future medical expenses of the account owner, their spouse, and any qualified dependent. The medical expenses must not be reimbursable by insurance or other sources and their payment from HSA funds (distribution) won't give rise to a medical expense deduction on the individual's federal income tax return.
Eligibility.
A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance except for permitted insurance listed under section 223(c)(3) or insurance for accidents, disability, dental care, vision care, long-term care, or (in the case of months beginning after March 31, 2022, and before January 1, 2023, and plan years beginning on or before December 31, 2021, or after December 31, 2022, and before January 1, 2025) telehealth and other remote care. For calendar year 2024, a qualifying HDHP must have a deductible of at least $1,600 for self-only coverage or $3,200 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $8,050 for self-only coverage and $16,100 for family coverage.
There are no income limits that restrict an individual's eligibility to contribute to an HSA nor is there a requirement that the account owner have earned income to make a contribution.
Exceptions.
An individual isn't a qualified individual if they can be claimed as a dependent on another person's tax return. Also, an employee's participation in a health FSA or HRA generally disqualifies the individual (and employer) from making contributions to their HSA. However, an individual may qualify to participate in an HSA if they are participating in only a limited-purpose FSA or HRA or a post-deductible FSA. For more information, see Other employee health plans in Pub. 969.
Employer contributions.
Up to specified dollar limits, cash contributions to the HSA of a qualified individual (determined monthly) are exempt from federal income tax withholding, social security tax, Medicare tax, and FUTA tax if you reasonably believe that the employee can exclude the benefits from gross income. For 2024, you can contribute up to $4,150 for self-only coverage under an HDHP or $8,300 for family coverage under an HDHP to a qualified individual's HSA.
The contribution amounts listed above are increased by $1,000 for a qualified individual who is age 55 or older at any time during the year. For two qualified individuals who are married to each other and who are each age 55 or older at any time during the year, each spouse's contribution limit is increased by $1,000, provided each spouse has a separate HSA. No contributions can be made to an individual's HSA after they become enrolled in Medicare Part A or Part B.
Nondiscrimination rules.
Your contribution amount to an employee's HSA must be comparable for all employees who have comparable coverage during the same period. Otherwise, there will be an excise tax equal to 35% of the amount you contributed to all employees' HSAs.
For guidance on employer comparable contributions to HSAs under section 4980G in instances where an employee hasn't established an HSA by December 31 and in instances where an employer accelerates contributions for the calendar year for employees who have incurred qualified medical expenses, see Regulations section 54.4980G-4.
Exception.
The Tax Relief and Health Care Act of 2006 allows employers to make larger HSA contributions for a nonhighly compensated employee than for a highly compensated employee. A highly compensated employee for 2024 is an employee who meets either of the following tests.
You can choose to ignore test (2) if the employee wasn't also in the top 20% of employees when ranked by pay for the preceding year.
Partnerships and S corporations.
Partners and 2% shareholders of an S corporation aren't eligible for salary reduction (pre-tax) contributions to an HSA. Employer contributions to the HSA of a bona fide partner or 2% shareholder are treated as distributions or guaranteed payments, as determined by the facts and circumstances. For more information, see Notice 2005-8, 2005-4 I.R.B. 368, available at IRS.gov/irb/2005-04_IRB#NOT-2005-8.
Cafeteria plans.
You may contribute to an employee's HSA using a cafeteria plan and your contributions aren't subject to the statutory comparability rules. However, cafeteria plan nondiscrimination rules still apply. For example, contributions under a cafeteria plan to employee HSAs can't be greater for higher-paid employees than they are for lower-paid employees. Contributions that favor lower-paid employees aren't prohibited.
Reporting requirements.
You must report your contributions to an employee's HSA in box 12 of Form W-2 using code W. The trustee or custodian of the HSA, generally a bank or insurance company, reports distributions from the HSA using Form 1099-SA.
More information.
For more information about HSAs, see Pub. 969.
You can exclude the value of lodging you furnish to an employee from the employee's wages if it meets the following tests.
Different tests may apply to lodging furnished by educational institutions. See section 119(d) of the Internal Revenue Code for details.
If you allow your employee to choose to receive additional pay instead of lodging, then the lodging, if chosen, isn’t excluded. The exclusion also doesn't apply to cash allowances for lodging.
On your business premises.
For this exclusion, your business premises is generally your employee's place of work. For example, if you're a household employer, then lodging furnished in your home to a household employee would be considered lodging furnished on your business premises. For special rules that apply to lodging furnished in a camp located in a foreign country, see section 119(c) of the Internal Revenue Code and its regulations.
For your convenience.
Whether or not you furnish lodging for your convenience as an employer depends on all the facts and circumstances. You furnish the lodging to your employee for your convenience if you do this for a substantial business reason other than to provide the employee with additional pay. This is true even if a law or an employment contract provides that the lodging is furnished as pay. However, a written statement that the lodging is furnished for your convenience isn't sufficient.
Condition of employment.
Lodging meets this test if you require your employees to accept the lodging because they need to live on your business premises to be able to properly perform their duties. Examples include employees who must be available at all times and employees who couldn't perform their required duties without being furnished the lodging.
It doesn't matter whether you must furnish the lodging as pay under the terms of an employment contract or a law fixing the terms of employment.
Example of qualifying lodging.
You employ Sam at a construction project at a remote job site in Alaska. Due to the inaccessibility of facilities for the employees who are working at the job site to obtain lodging and the prevailing weather conditions, you furnish lodging to your employees at the construction site in order to carry on the construction project. You require that your employees accept the lodging as a condition of their employment. You may exclude the lodging that you provide from Sam's wages. Additionally, because sufficient eating facilities aren’t available near your place of employment, you may also exclude meals you provide to Sam from his wages, as discussed in Proper meals not otherwise available under Meals on Your Business Premises , later in this section.
Example of nonqualifying lodging.
A hospital gives Joan, an employee of the hospital, the choice of living at the hospital free of charge or living elsewhere and receiving a cash allowance in addition to Joan’s regular salary. If Joan chooses to live at the hospital, the hospital can't exclude the value of the lodging from her wages because she isn't required to live at the hospital to properly perform the duties of her employment.
S corporation shareholders.
For this exclusion, don't treat a 2% shareholder of an S corporation as an employee of the corporation. A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but don't treat the benefit as a reduction in distributions to the 2% shareholder. For more information, see Revenue Ruling 91-26, 1991-1 C.B. 184.
This section discusses the exclusion rules that apply to de minimis meals and meals on your business premises.