Internal Revenue Code section 132(a)

Internal Revenue Code Section 132(a) provides eight types of fringe benefits that are excluded from gross income. These include fringe benefits which qualify as a (1) no-additional-cost service, (2) qualified employee discount, (3) working condition fringe, (4) de minimis fringe, (5) qualified transportation fringe, (6) qualified moving expense reimbursement, (7) qualified retirement planning services, or (8) qualified military base realignment and closure fringe.

Fringe benefits excluded from gross income

No-Additional-Cost Service

A No-Additional-Cost Service is defined in Section 132(b) as any service provided by an employer to an employee if (1) the service is offered for sale to customers in the ordinary course of the employer's business and (2) the employer incurs no substantial additional cost in providing the service to the employee.

Qualified Employee Discount

A Qualified Employee Discount is defined in Section 132(c) as any employee discount with respect to qualified property or services to the extent the discount does not exceed (a) the gross profit percentage of the price at which the property is being offered by the employer to customers, in the case of property, or (b) 20% of the price offered for services by the employer to customers, in the case of services.

Working Condition Fringe

Working Condition Fringe is defined in Section 132(d) as any property or services provided to an employee so that the employee is able to perform her job. Examples include a company car for business travel, a cell phone provided primarily for business purposes, and job-related education.

For job-related education, the education must maintain or improve skills required as part of the job or that meet the express requirements of the employer. The educational requirements must be imposed as a condition of continued employment, status, or pay level, or satisfy new requirements of the position after hire. The educational requirements cannot simply satisfy the minimum educational requirements to qualify for employment.

If an employer pays for an employee's income tax return preparation, the expense does not qualify for a working condition fringe.

De Minimis Fringe

De Minimis Fringe is defined in Section 132(e)(1) as any property or service given to an employee by the employer which is, after taking into account the frequency provided, whose value is so small as to make accounting for it unreasonable or administratively impracticable. Examples of de minimus fringe includes personal use of an employer-provided cell phone provided primarily for business purposes; occasional personal use of the employer's copier; holiday gifts, other than cash or gift cards, with a low fair-market value; occasional parties or picnics for employees and their guests; occasional tickets for theater or sporting events.

Under Section 1.132-6(b)(1) of the Treasury Regulations, all similar fringes must be considered together to determine whether they are de minimus. One free meal given to all employees once a year would qualify because the meals are infrequently provided. One free meal provided to a different employee each week throughout the year would not qualify.

Under Section 1.132-6(c) of the Treasury Regulations, cash never qualifies as a de minimum fringe. Cash or gift certificates provided to an employee so the employee may buy a theater ticket does not qualify. It would qualify, however, if the employer purchases the theater ticket, provides the actual theater ticket to the employee, and the employer infrequently gives out tickets to employees.

Gift cards never qualify if they are redeemable for variety of merchandise or have a cash equivalent value. Gift cards do not qualify if they have a specific face value and are redeemable for merchandise at a store. If a gift certificate allows an employee to receive a specific item of low-value personal property, it is administratively impractical for the employer to account for the gift certificate, and the employer infrequently provides gift certificates to employees, then the gift certificate qualifies.

The Internal Revenue Service does not define low value, but in Chief Counsel Advice Memorandum 200108042 it states that an item worth $100 is not a low-value item.

While the Internal Revenue Service does not define infrequently, gifts to employees on a quarterly basis would not qualify as a de minimis fringe benefit.

Qualified Transportation Fringe

Qualified transportation fringe is defined in Section 132(f) as (1)(A) transportation in a commuter highway vehicle between the employee's residence and place of employment, (B) any transit pass, or (C) qualified parking, if provided by an employer to an employee. An employer-paid bicycle commuter benefit also qualifies.

Qualified Moving Expense Reimbursement

Qualified Moving Expense Reimbursement is defined in Section 132(g) as any amount received by an individual from an employer as payment for expenses that would be deductible as moving expenses under Section 217 if paid by the individual.

Qualified Retirement Planning Services

Qualified Retirement Planning Services is defined in Section 132(m) as retirement planning advice or information provided to an employee and spouse by an employer maintaining a qualified employer plan.

Qualified Military Base Realignment and Closure Fringe

Qualified Military Base Realignment and Closure Fringe is defined in Section 132(n) as one or more payments under Section 1013 of the Demonstration Cities and Metropolitan Development Act of 1966 to offset the adverse effects on housing values from military base realignment or closure.

Other statutory fringe benefits

Other fringe benefits may be excluded from taxable income under other sections of the Internal Revenue Code.

Section 74(c) excludes employee achievement awards given to employees for their service (five years or more) or safety record. The award must be a tangible item, not cash or gift cards; must be given to employee as part of a meaningful presentation; and cannot seem to be disguised compensation. An employer must have a written policy regarding such awards, awards must total no more than $1,600 per year, and the average award must not exceed $400.

Section 79 excludes $50,000 worth of group term life insurance benefits provided by an employer to an employee.

Section 106(a) excludes accident and health insurance coverage provided by an employer.

Many qualified retirement plans are governed under Section 401, 403, or 457.

Further reading

• Donaldson, Samuel A., Federal Income Taxation of Individuals: Cases, Problems and Materials, 90, 92 (2nd. Ed. 2007)