Re-evaluating the landscape of Taxable Employee Benefits

Re-evaluating the landscape of Taxable Employee Benefits

There are several layers that the organization has to unwrap to ensure that it is compliant with regulations and that its TEB, also known as BIK and fringe benefits, processes are aligned with best practices. For many companies, employee reporting about travel and expenses is vague and difficult to track and monitor. Organizations require tools that can support taxable expense tracking across multiple facets of the company, from travel to expenses to every layer in between. Tools that provide them with automated reporting and management to achieve optimal tax compliance and results.

 

Reporting of employee expenses and travel is vague and difficult to track and monitor for many companies. Ensuring compliance with Taxable Employee Benefit (TEB) Regulations – known as Fringe Benefits by the Internal Revenue Service (IRS), – or a Benefit-In-Kind (BIK) in the United Kingdom further adds to the ambiguity. Fractured data, complicated tools and inadequate tools – make it extremely difficult to decide whether spend is an expense or a taxable benefit that should be added to an employee paystub.

 

RESOURCE:
IRS publication 15-B (2021) Employers Tax Guide to Fringe Benefits is a GREAT resource to understand the details of the US fringe benefit rules.  As with everything tax… it starts with “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.”

Fractured Data

All employers are under an obligation to report employee driven spend, it’s become critical that systems are structured to capture data in such a way as to maintain compliance, meet regulatory frameworks, and streamline processes.

As work has moved from the office to the home office, spend has moved away from centralized purchasing to a more consumer-oriented style. This increases the number of vendors as well as the number of transactions, while decreasing the ability to control and manage – thus fracturing the data.

Because of this fractured data manual review points are necessary, which are often subjective based on reviewer bias or education. This creates risk for the organization by allowing inconsistent decision making and an inaccurate expense v. benefit determination.

Complicated Rules

The IRS does not make determination of taxable benefits easy. There are rules that exclude all or part of the value of certain benefits from a recipients pay and (in most cases) the excluded benefit isn’t subject to federal income tax withholding, social security, Medicare, Federal unemployment tax and others. There are various exclusions for the following:

  • Accident and health benefits.
  • Achievement awards.
  • Adoption assistance.
  • Athletic facilities.
  • De minimis (minimal) benefits.
  • Dependent care assistance.
  • Educational assistance.
  • Employee discounts.
  • Employee stock options.
  • Employer-provided cell phones.
  • Group-term life insurance coverage.
  • Lodging on your business premises.
  • No-additional-cost services.
  • Retirement planning services.
  • Transportation (commuting) benefits.
  • Tuition reduction.
  • Working condition benefits.

See Table 2-1 for an overview of the employment tax treatment on the IRS website for an explanation of these benefits. Again, if the employee spend is not listed, it could be determined to be a taxable benefit.

Inadequate Tools

As mentioned above, many companies are ill-equipped to properly determine what is considered an expense v. a benefit. This determination must be done with consistency and efficiency – which is difficult to achieve through manual processes.

Technology solutions can provide a centralized platform that provides complete coverage for benefit/expense determination, management and reporting. A smart technology solution is designed to mitigate risk by being accurate, consistent and efficient removing bias from the equation.

This is accomplished by leveraging artificial intelligence (AI), machine learning and automation to translate complex rules into globally relevant and accessible data – simply. These systems offer immediate and intelligent relief to teams monitoring employee travel and expenses within compensation package parameters by ensuring that proper controls and calculations are in place.

Accurate data, correct determinations and proper review processes can all be automated by technology. Knowing how to designate an expense versus a benefit correctly is the key to recognizing transactions that may be of concern.

Visit the Blue dot tax and technology education platform to find out more about how these benefits can be customized to suit your business; or visit the Blue dot taxable employee benefits library to gain richer insight into how these can impact on your business. You can find out more about working from home reimbursements and legal parameters within the US here; and in the UK here.

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