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Small Business Employee Benefits and HR Blog

2015 Tax Season: Did You Deduct Your Employee Benefits?

For small and growing companies it’s a common dilemma: offer extravagant employee benefits and stall profits, or penny pinch and risk losing your best employees

2015 Tax Season: Did You Deduct Your Employee Benefits?

With rising healthcare costs and an increasingly mobile workforce, finding the right balance is difficult. You want to provide great benefits, but you cannot afford to waste money on benefits that do nothing to recruit and retain a competitive workforce.

One way to make the most out of your employee benefits is by offering programs that can also be deducted from your (and your employees’) taxes. So before you sit down to file your 2015 corporate tax return, take a look at these benefits and see if you have any existing programs that are tax-advantaged. 

Popular Employee Benefits

Some benefits on this list have ranked #1 for decades, others are emerging as new contenders as we see an influx of millennial workers. Regardless of which benefit is en mode this year, employee benefits are essential to recruiting and retention. So, we’ve rounded up the most sought-after and best employee benefits of 2016.

  1. Healthcare
  2. Retirement
  3. Paid Time Off
  4. Workplace Flexibility
  5. Wellness Program
  6. Tuition Reimbursement
  7. Flexible and Family-Friendly Schedules
  8. Pay Raise or Performance Bonus
  9. Life Insurance
  10. Telecommuting
  11. Workplace Perks
  12. Professional Development & Training

These top employee benefits probably don’t come as a surprise. After all, there are baseline employee benefits that most industry experts say are needed to attract talent competitively: healthcare, paid time off, and retirement savings options. And then there are specialty benefits and workplace perks that help businesses - even small businesses - become an Employer of Choice.

But with a limited budget, how do you decide which benefits to offer? Our advice is to make your dollar go 7 to 20 percent farther by deducting your employee benefits this 2015 tax season.

Employee Benefits You Can Deduct From Your Taxes

The IRS lists types of employee benefits that may be offered tax-free. Here is a summary of benefits and their tax treatment.

Type of Fringe Benefit Income Tax Withholding Social Security and Medicare Federal Unemployment (FUTA)
Accident and health benefits Exempt, except for long-term care benefits provided through a flexible spending or similar arrangement. Exempt, except for certain payments to S corporation employees who are 2% shareholders. Exempt
Achievement awards Exempt up to $1,600 for qualified plan awards ($400 for nonqualified awards).
Adoption assistance Exempt 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
Dependent care assistance Exempt 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.
Employee discounts Exempt up to certain limits.
Employee stock options Varies. Refer to IRS Publication 15-B for a discussion on stock options. 
Employer-provided cell phones Exempt if provided primarily for noncompensatory business purposes.
Group-term life insurance coverage Exempt Exempt 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.
Lodging on your business premises Exempt if furnished for your convenience as a condition of employment.
Meals Exempt if furnished on your business premises for your convenience.
Moving expense reimbursements Exempt if expenses would be deductible if the employee had paid them.
No-additional-cost services Exempt
Retirement planning services Exempt
Transportation (commuting) benefits Exempt up to certain limits if for rides in a commuter highway vehicle and/or transit passes ($130), qualified parking ($250), or qualified bicycle commuting reimbursement ($20).
Tuition reduction Exempt if for undergraduate education (or graduate education if the employee performs teaching or research activities).
Working condition benefits Exempt

Chart Source - IRS Publication 15-B

Planning Ahead - Building Your Ideal Benefits Program

So now you have some ideas on which benefits are popular and which benefits you can deduct from your taxes - where do you go from here? Invest in benefits your employees want and will love!

Ask employees what they value in benefits and compensation. The answer might surprise you.

Studies show what employees value is changing. For example, a recent survey by Metlife found employees value choice and the ability to personalize benefits. According to the survey, over three quarters (78%) of employees want a greater variety of benefits to choose from and 80% of employees value benefits customized to individual circumstances and age.

And, more than ever, employees say they are ready to share responsibility for this variety: the survey found 60% are willing to bear more of the cost in order to have a choice of benefits that meet their needs.

In other words, employees are increasingly telling us, “we greatly value the contribution, but we want to choose how to allocate the dollars.”

Conclusion

Small and growing businesses can use tax-free benefits such as contributions to health insurance and/or HSAs, contributions to retirement accounts, and workplace perks to offer customizable benefits that employees will value. For businesses that are dollar conscious, use this guide to create a benefits program that you can deduct from your current or future tax returns.

The Comprehensive Guide to the Small Business HRA

If you have any questions regarding tax-free employee benefits or if you just want to say hi, we’d love to hear from you! Comment on the blog below. 

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