There’s a yawning gap in the employer-employee relationship. About 78% of employers responding to the 2023-2024 Aflac WorkForces Report believe their employees are very or extremely satisfied with their benefits packages, but in reality, only 59% of employees reported high levels of satisfaction.
Cost is one of the factors sowing seeds of discontent. Three-quarters of employers in the Aflac study said their benefits costs had increased in the past year, causing them to shift more of the financial burden to employees through higher insurance premiums, copays and deductibles. But here’s the kicker: More than half (53%) of employees said they would consider a job offer that included slightly lower compensation but better benefits.
There’s an opportunity here. What if you could create a benefits package that hit the sweet spot of high perceived value for your employees and bottom-line benefits for your company? When weighing the costs of employee benefits, it’s important to consider the tax of it all.
7 High-Value, Low-Tax Fringe Benefits
If you’re looking for ways to get more bang for your benefits buck, consider filling up your employees’ nontaxable bucket. Here are some under-the-radar, tax-advantaged perks that will help strengthen your relationship with your people:
- Health savings accounts (HSAs). Okay, this one may not be under the radar, but it’s too important to not mention. Employees consistently put health-related benefits at the top of their wish list. And at a time when health insurance keeps getting more expensive, HSAs can be financially advantageous to employers and their employees. Your contributions to the HSA are tax-deductible for your company, and the value of those contributions is also tax-exempt for qualified individuals up to the federal HSA contribution limits (currently $8,350 for family coverage or $4,150 for self-only coverage).
- Retirement planning. Retirement savings and planning also are right up there on the list of high-value employee benefits. You’re probably thinking, “I already offer a tax-deferred qualified 401(k) plan. There’s nothing new there.” True, but did you know that because you offer that qualified retirement plan, you may be able to exclude the cost of any retirement planning services from an employee’s wages? The advice and information don’t have to pertain specifically to your company’s retirement plan. For example, this could include basic financial education about how to set up a budget or even balance a checkbook, as it relates to planning for retirement. However, the exclusion doesn't apply to tax preparation, accounting, legal or brokerage services.
- Remote work benefits. Remote work is here to stay. In a survey on new benefits for remote workers, employees rated home office stipends and internet reimbursement as the most desirable remote-work benefits. Although stipends are generally taxable, reimbursements for actual costs, including high-speed internet, are exempt. You also might be able to exclude the cost of certain meals provided to remote employees. And speaking of remote work and taxes, make sure your employees know they need to update HR when they decide to move — especially if the new address is in a different state. Otherwise, you could unknowingly incur different kinds of state and local tax liabilities.
- Adoption assistance. Growing a family is expensive. Thankfully, parents looking to adopt can receive up to $16,810 in tax-free assistance from their employers. Just be aware that the adoption assistance must be part of a written plan that doesn’t favor highly compensated employees or their dependents. Also, employers must report all qualifying adoption expenses — including amounts in excess of the exclusion — in box 12 of the employee’s Form W-2.
- Dependent care assistance. Anyone who cares for a young child, a parent or another dependent appreciates help with the costs. The Tax Code provides two ways to make child and dependent care more affordable: the child and dependent care tax credit and an employer-provided dependent care assistance program (DCAP). The tax credit is for up to $3,000 in expenses for one qualifying person or $6,000 for two or more qualifying persons. Alternatively, an employee can choose to participate in their employer’s DCAP and exclude up to $2,500 (or $5,000 if married filing jointly) in dependent care assistance.
- Tuition reduction. You want to hire motivated employees, right? Not only are career-building benefits highly prized by employees, your company also reaps the rewards of that investment. The cherry on top of this sweet benefit is that it is tax-exempt as long as the money goes toward undergraduate tuition. (Educational organizations can offer tax-exempt tuition reduction to graduate students who perform teaching or research activities.)
- Student loan repayment. Student loans can be a crushing weight for employees who are already feeling financial strain. Fortunately, employers can exclude up to $5,250 per year in 2024 and 2025 from an employee’s income for debt payments as a tax-free benefit. The Consolidated Appropriations Act of 2021 extended this tax-advantaged treatment through the end of 2025.
Check out IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits for all the details on these and other fringe benefits, including exclusion amounts for 2024 and specific reporting rules for each type of benefit.
Little Things Add Up: What Perks Qualify as De Minimis?
Another category of nontaxable benefits is worthy of consideration. De minimis benefits are small gifts and perks that have minimal value and are given so infrequently that accounting for them would be unreasonable or administratively impractical.
For example, occasional parties and snacks can be excluded from an employee’s taxable income, as can tickets for the occasional theater or sporting event. However, cash and cash equivalents such as gift certificates and gift cards are never excludable — no matter the amount.
You can also cover the cost of the occasional bus fare. For example, if an employee works overtime, a special rule allows you to exclude discounted public transit passes, tokens or fare cards as a de minimis benefit. Just make sure the discount doesn’t exceed $21 per month and the benefit isn’t used for personal travel.
Lean Into Tax-Advantaged Fringe Benefits
Don’t miss any opportunities to increase employee satisfaction and take advantage of tax incentives. Find out more about how our privately held business tax experts can help you build a competitive, compliant and tax-advantaged employee benefits package that’s cost-effective for you and valuable for your people.
