Many employer‑provided benefits are taxable unless a specific exclusion applies. A fringe benefit is generally included in income unless the employee pays fair market value or the law provides an exclusion. For tax purposes, even not performing services (such as under a non‑compete) is treated as performing services.
Below are the major exclusions.
Fringe Benefits Excluded From Income
Accident and health plan coverage
Employer‑provided coverage is excluded. Payments received from the plan may be taxable depending on the type of benefit.
Long‑term care coverage
Employer contributions are excluded unless provided through a cafeteria plan or FSA. Amounts provided through those arrangements are taxable wages.
Meals and lodging
Excluded when:
- Provided on the employer’s premises
- Provided for the employer’s convenience
Health FSA
Salary reductions and reimbursements for qualified medical expenses are excluded.
Health Reimbursement Arrangement (HRA)
Employer‑funded reimbursements for medical care are excluded.
Health Savings Account (HSA)
Employer contributions (reported in Box 12, Code W) are excluded. Employees may also contribute and report on Form 8889.
Archer MSA contributions
Employer contributions (Box 12, Code R) are excluded and reported on Form 8853.
De minimis benefits
Excluded when the value is so small that accounting for it is unreasonable. Examples: coffee, snacks, occasional small items.
Holiday gifts
Excluded when the gift is a non‑cash item of nominal value (e.g., turkey, ham). Cash or cash‑equivalent items (gift cards, certificates) are taxable.
Dependent care assistance
Up to $5,000 excluded ($2,500 MFS) for 2025.
Adoption assistance
Excluded up to:
- $17,280 for a child with special needs
- Up to $17,280 or actual qualified expenses for other adoptions
Educational assistance
Up to $5,250 excluded for qualified tuition, fees, books, and supplies. Meals, lodging, transportation, and tools kept after the course do not qualify.
Moving expense reimbursements
Excluded only for:
- Active‑duty U.S. Armed Forces members moving under orders
- U.S. intelligence community members (effective 2026 under the One Big Beautiful Bill Act)
Most civilians cannot exclude moving reimbursements.
Group‑term life insurance
Excluded up to $50,000 of coverage. Cost of coverage above $50,000 (minus employee contributions) is taxable. Permanent benefits are taxable.
Retirement planning services
Qualified retirement planning advice is excluded. Tax prep, accounting, legal, and brokerage services are not excluded.
Qualified transportation benefits
For 2025:
- Transit + commuter vehicles: up to $325/month
- Qualified parking: up to $325/month
No‑additional‑cost services
Excluded when:
- The service is offered to customers
- The employer incurs no substantial additional cost
- The employee works in that line of business
Examples: unused airline seats, hotel rooms, excess capacity services.
Athletic facilities
Excluded when the facility is:
- Employer‑owned
- Used primarily by employees, spouses, and dependents
Employee discounts
Excluded up to:
- Merchandise discount: employer’s gross profit percentage
- Services discount: 20% of the price normally charged
Qualified retirement plan contributions
Employer contributions (other than Roth) are excluded until withdrawn. Elective deferrals (non‑Roth) are excluded from income tax but subject to FICA.
Employee Achievement Awards
Awards for length of service or safety achievement may be excluded if:
- The award is tangible personal property
- Not cash or cash equivalents
- Not vacations, meals, tickets, stocks, or similar items
Exclusion Limits
- Up to $1,600 for qualified plan awards
- Up to $400 for non‑qualified plan awards
Awards must not resemble disguised compensation.
Disallowed Awards
- Length‑of‑service awards for fewer than 5 years
- Awards given within 4 years of a prior service award
- Safety awards to managers, administrators, clerical, or professional employees
- Safety awards if more than 10% of eligible employees receive them