Fringe Benefits

Which Employee Benefits Survived Recent Tax Legislation and Which Disappeared Forever?

Earmark Team · February 5, 2026 ·

Picture an HVAC technician standing in a Florida hardware store, personal credit card in hand, about to purchase a part needed to complete an air conditioning repair. It’s a routine moment that plays out thousands of times daily across the country: an employee spending personal funds on a legitimate business expense. But what happens next determines whether that simple transaction remains a straightforward reimbursement or transforms into unexpected taxable income.

This scenario is part of the final installment of the Tax in Action podcast’s three-part series on fringe benefits. In this episode, host Jeremy Wells, EA, CPA, completes his comprehensive discussion of IRC Section 132 benefits by looking at the remaining four fringe benefit categories and tackling the often-misunderstood topic of accountable plans.

The timing couldn’t be better. The Tax Cuts and Jobs Act of 2017 initially suspended many traditional benefits through 2025. Now, the One Big Beautiful Bill Act has made those restrictions permanent. And ir’s crucial for tax practitioners to understand these changes.

The Legislative Wrecking Ball: What’s Gone and What Remains

Before advising clients on fringe benefits, practitioners need a clear picture of what recent legislation has taken off the table permanently.

No Qualified Transportation Benefits Deductions for Employers

The qualified transportation fringe once covered four benefit categories:

Transportation in a commuter highway vehicle
Transit passes
Qualified parking
Qualified bicycle commuting reimbursement

For employers in major cities, these benefits were a meaningful way to help employees manage commuting costs.

That’s all changed now.

The Tax Cuts and Jobs Act disallowed the employer deduction for these benefits from 2018 through 2025, with one narrow exception: employers could still deduct transportation costs provided to ensure employee safety. As Jeremy explains, this means “vehicles that need additional security, such as bulletproof glass or a driver, a chauffeur that is trained in defensive driving techniques”—not typical small business scenarios.

The One Big Beautiful Bill Act made this disallowance permanent under IRC Section 274(a)(4).

But there’s a crucial nuance: the employee exclusion still exists for most of these benefits. Employees can still receive transit passes or qualified parking tax-free, within the limits in Treasury Regulation Section 1.132-9. The employer just can’t deduct the cost anymore. This creates an awkward situation where “there’s really not a strong incentive for the business to provide that fringe benefit,” Jeremy notes.

Bicycle commuting reimbursement fared worse. The Tax Cuts and Jobs Act eliminated both the employer deduction and the employee exclusion entirely. “Beginning with tax year 2018, the qualified bicycle commuting reimbursement is no longer a thing,” Jeremy confirms.

Moving Expense Reimbursements Apply Only to Military and Intelligence

Under IRC Section 217, employers used to be able to exclude from employee income the reimbursement of moving household goods and travel expenses between residences (including lodging but not meals). It was a practical benefit for companies relocating talent.

The Tax Cuts and Jobs Act suspended the exclusion and the individual’s ability to deduct moving expenses. The One Big Beautiful Bill Act made that suspension permanent, with two specific exceptions.

Members of the U.S. Armed Forces on active duty who move pursuant to a military order still qualify. Also, the One Big Beautiful Bill Act added employees or new appointees of the intelligence community, as defined in Section 3 of the National Security Act of 1947.

For everyone else, this is a benefit “we just really won’t see that much anymore,” Jeremy says.

What Benefits Survived?

Not all benefits fell victim to legislative changes. Two Section 132 benefits emerged unscathed.

Qualified Retirement Planning Services (Section 132(m)) allows employers maintaining qualified employer plans to provide tax-free retirement planning advice to employees and their spouses. Jeremy describes this as situations where “you might meet with a financial advisor” when becoming eligible for employer-sponsored retirement plans.

The benefit requires nondiscrimination. Highly compensated employees can participate only if services are available “on substantially the same terms to each member of the group of employees.”

Qualified Military Base Realignment and Closure Fringe (Section 132(n)) compensates military personnel and certain federal civilian employees for housing value declines caused by base closures. Jeremy explains how military bases drive local economies, and when they close, “selling a house could be pretty difficult.”

The Defense Department’s Homeowners Assistance Program provides three payment scenarios:

Private sale: difference between 95% of prior fair market value and actual selling price
Government acquisition: greater of 90% of prior value or mortgage payoff
Foreclosure: payment directly to lienholder

The program is run by the U.S. Army Corps of Engineers and is currently limited to wounded, injured, or ill soldiers and their surviving spouses.

Achievement Awards and the Gym Membership Myth

Beyond Section 132, two benefit categories generate frequent questions (and misconceptions).

Specific Rules for Achievement Awards

Employee achievement awards survived legislative changes intact. Employers can provide tax-free awards for length of service and safety achievements, but the rules are rigid.

Safety achievement awards cannot go to “a manager, administrator, clerical employee, or other professional employee.” Jeremy clarifies the recipient must be “someone that is actually in a line of work within that company where safety could be an issue.” For example, awards can go to workers on factory floors or construction sites, but not office workers.

No more than 10% of eligible employees can receive safety awards annually.

Length of service awards require at least five years of employment. Jeremy notes these are “usually ten, 15, 20 years” in practice.

For both categories, the awards must meet the following requirements:

It must be tangible personal property (such as the “stereotypical gold wristwatch”)
It cannot be cash, cash equivalents, vacations, meals, lodging, event tickets, or securities
The award must involve a “meaningful presentation,” such as a sort of ceremony or all-hands meeting
The award cannot create conditions suggesting disguised compensation

There are also dollar limits to keep in mind. The award value is limited to $1,600 per employee per year for qualified plan awards, and $400 for non-qualified awards. A qualified plan must be written and not discriminate toward highly compensated employees.

Athletic Facilities: The Question That Won’t Die

Jeremy addresses a common question from self-employed clients: “How do I let my business write off my gym membership?”

But gym memberships are inherently personal expenses, and therefore not deductible.

The athletic facilities benefit under IRC Section 132(j-4) requires the facility be “owned or leased and operated by the employer” for the “substantially exclusive use” of employees, spouses, and dependent children.

The following absolutely do not qualify:

Gym memberships
Country club memberships
Personal trainers
Any fitness program open to the public

Jeremy sympathizes with self-employed clients who want to look good for their clientele, but wanting doesn’t make it deductible. The only path requires the business to literally own or operate the gym itself.

The Three-Requirement Test for Accountable Plans

When employees spend their own money on business expenses, accountable plans determine whether reimbursements are tax-free or taxable wages.

The Employee’s Dilemma

IRC Section 62(a)(1) creates a problem. Employees cannot deduct business expenses from their gross income. The Tax Cuts and Jobs Act suspended the old miscellaneous itemized deduction (subject to 2% of AGI), and the One Big Beautiful Bill Act made the exclusions permanent.

Returning to Jeremy’s HVAC technician example, “They get to a site, they are ready to make the repair, but they’re missing a part.” The technician buys it with personal funds. Without proper reimbursement, “this was not a personal expense. This was a business expense. The employee should expect to be reimbursed.”

Three Requirements, Zero Flexibility

Treasury Regulation 1.62-2 establishes three criteria for accountable plans. Miss any one, and “allowances, advancements and reimbursements paid under a non-accountable plan have to be included in the employee’s gross income.”

Requirement 1: Business Connection

The expense must be “ordinary and necessary for the employer” and incurred “in connection with the performance of services as an employee.”

Jeremy warns against payments made “regardless of whether the employee actually incurs or is reasonably expected to incur bona fide employee business expenses.” Those payments automatically fail the test.

Requirement 2: Substantiation

For general expenses, employees must provide documentation “sufficient to enable the payer to identify the specific nature of each expense.” Vague terms like “miscellaneous business expenses” don’t qualify.

For Section 274(d) expenses (travel, meals, vehicle use), strict rules require:

Dates and durations
Locations and distances
Business purpose
Identity of individuals involved

Jeremy emphasizes “receipts or contemporaneous logbooks” as the standard.

Requirement 3: Return of Excess

When providing advances, employers must get back any unsubstantiated amounts. Jeremy gives a simple example: “You give an employee $100 to drive across the county” but receipts total $40. “The employee needs to return the additional $60.”

A safe harbor exists if the company provides quarterly statements showing advances versus substantiated amounts and gives employees 120 days to substantiate or return the excess.

The Cascade Effect of Failure

Revenue Ruling 2006-56 contains a harsh rule. If an arrangement “routinely pays allowances in excess of the amount substantiated without requiring actual substantiation” or repayment, “all the payments, not just the excess, but all payments” become taxable wages.

The Recharacterization Trap

“An arrangement that characterizes taxable wages as nontaxable reimbursements or allowances doesn’t satisfy the business connection requirement,” Jeremy points out, emphasizing a critical limitation.

This comes up frequently with S-corporation shareholder-employees who engage advisors mid-year. “We can’t go back in the past and look at that and try to recharacterize some of those wages. That is not allowed,” Jeremy explains.

Who’s Excluded

Independent contractors fall outside accountable plan rules entirely. Jeremy clarifies that reimbursements “need to be included in the gross income that’s reported as payments to that independent contractor” on Form 1099-NEC. The contractor then deducts the expense themselves.

Partners in partnerships create a gray area. “I don’t really see a case for using accountable plans for partners in partnerships,” Jeremy says. Instead, handle reimbursements through the partnership agreement, with unreimbursed expenses deducted on page two of Schedule E.

Protecting Clients from Costly Mistakes

The fringe benefit rules have permanently changed, and the remaining benefits require careful implementation. As Jeremy concludes, employers must understand the rules “whenever they provide any sort of benefit or compensation to employees that they want to be deductible and/or excludable.”

Accountable plans are a critical mechanism for separating tax-free reimbursements from unexpected wage income, but the three requirements don’t allow for partial compliance.

Practitioners must know what’s permitted and work to correct persistent misconceptions. Gym memberships don’t become deductible because clients want them to be, and companies can retroactively reclassify wages.

The stakes justify the diligence. Every employer who mishandles these benefits creates lost deductions for the business and unexpected taxable income for employees. And nobody wants that.

This concludes Jeremy’ three-part series on fringe benefits and accountable plans. Listen to the full episode for complete details, and check out part one and part two covering qualified employee discounts, no-additional-cost services, working condition fringes, and de minimis benefits.

Company Vehicles, Cell Phones, and Office Snacks: What’s Actually Tax-Free for Employees

Earmark Team · February 2, 2026 ·

Have you ever had to explain to a client that the $35 gift card they gave each employee for the holidays must be reported as taxable compensation, but the $35 holiday ham they gave last year was completely tax-free? Welcome to the world of fringe benefit taxation, where seemingly identical gestures of employee appreciation can produce dramatically different tax consequences.

This counterintuitive example comes from Episode 18 of the Tax in Action podcast, where host Jeremy Wells, EA, CPA, continues his deep dive into IRC Section 132’s fringe benefit provisions. Building on a previous episode discussing no-additional-cost services and qualified employee discounts, this episode covers two benefit categories that touch nearly every business with employees: working condition fringes and de minimis fringe benefits.

Many employers want to provide benefits to their workforce, but the line between tax-free perks and reportable compensation often comes down to surprisingly specific details. Understanding these distinctions helps tax professionals guide clients toward meaningful benefits without triggering unexpected tax consequences.

When structured correctly, these benefits are deductible for the employer and excludable from the employee’s taxable compensation. Get the details wrong, and what was intended as a thoughtful perk becomes reportable wages subject to income, employment, and state taxes.

Working Condition Fringes Help Employees Do Their Jobs Better

The concept behind working condition fringes is straightforward. If an expense would be deductible under IRC Section 162 (ordinary business expenses) or Section 167 (depreciation) had the employee paid for it personally, the employer can provide that benefit tax-free. Some common examples include company vehicles for service technicians, professional development courses, business travel, and other things employees genuinely need to perform their jobs effectively.

But practitioners need to pay close attention to ensure the benefit relates specifically to that employee’s role with that employer. As Wells explains, if the expense instead supports outside professional activities, such as consulting privately, serving on an external board, or running a separate venture, the employer’s payment doesn’t qualify as an excludable working condition fringe. The employer would essentially be subsidizing something that benefits the employee’s outside activities rather than their own business operations.

Who Counts as an “Employee” (And Who Doesn’t)

The definition of “employee” for working condition fringes is broader and narrower than you might expect. It includes current employees, partners performing services for a partnership, directors of the employer, and even independent contractors performing services for the employer. This expanded definition allows businesses to provide qualifying benefits across different working relationships without triggering taxable compensation.

However, the definition is more restrictive than what applies to other fringe benefit categories. Former employees, spouses, and dependents can qualify for no-additional-cost services and qualified employee discounts discussed in Episode 17, but don’t make the cut for working condition fringes.

One additional group does qualify: bona fide volunteers at nonprofit organizations can receive working condition fringes without it being treated as compensation. This provides helpful flexibility for tax-exempt entities, though Wells emphasizes that understanding what organizations can provide to volunteers without converting them to compensated workers requires careful attention to the rules.

No Discrimination Rules Apply

Unlike many benefit programs, working condition fringes come with no nondiscrimination requirements. An employer can provide a company vehicle to one employee while not offering similar benefits to others. Highly compensated employees can receive working condition fringes that aren’t available to rank-and-file workers. This flexibility allows businesses to target these benefits where they’re most needed operationally.

Substantiation Requirements Still Matter

The absence of nondiscrimination rules doesn’t mean working condition fringes don’t have documentation requirements. If IRC Section 274 imposes strict substantiation requirements on a particular type of expense, those same requirements apply when the expense is provided as a working condition fringe.

Wells points to club memberships as a prime example. IRC Section 274(a)(3) disallows deductions for membership dues in clubs organized for business, pleasure, recreation, or other social purposes, such as country clubs, chambers of commerce, civic organizations, and similar groups. When clients argue these memberships generate business connections, Wells notes “just because something seems like it should be deductible, or it seems unfair that it’s not deductible, that’s just simply what the law says.”

An employer can still pay for such memberships, but they must include the value in the employee’s compensation and deduct it or exclude it from compensation and forgo the deduction entirely.

When providing cash advances for working condition fringes, employers must require employees to use the cash for specific deductible activities, verify correct use with receipts, and return any unspent cash. This differs significantly from de minimis fringes.

Getting the Details Right with Company Vehicles

Employer-provided vehicles are a common working condition fringe benefit. We’re not talking about business owners using vehicles for personal transportation, but true company vehicles like the trucks driven by HVAC technicians, the vans operated by plumbers, and vehicles used by pest control professionals.

The excludable portion is the total annual value of the vehicle multiplied by the percentage of business-use miles. “Even though it’s company owned, there still needs to be a written, contemporaneous mileage log,” Wells says, emphasizing a critical point. Digital tracking counts, but the documentation must exist.

When an employee keeps the vehicle overnight to make an early morning service call, that commute home and back to work counts as personal use. The substantiation requirements don’t relax simply because the employer holds the title.

If multiple employees share vehicles throughout the year, their combined legitimate business mileage counts in both the numerator and denominator of the business-use calculation. But if specific employees use designated vehicles during identifiable periods, the organization must maintain records separately.

Other Working Condition Fringes

Product testing is another excludable category with specific requirements. Employers must limit product availability to the testing period, require return of products afterward, and collect detailed employee reports. Notably, directors and independent contractors don’t qualify for this particular exclusion, so employers must report test products provided to them as compensation.

Job-related education qualifies as a working condition fringe when it meets requirements under IRC Section 127. Wells devoted Episode 7 entirely to deductible education costs, which provides deeper guidance on this topic.

Business travel expenses, including flights on employer-provided aircraft, can be excluded when legitimately deductible. But personal elements, such as tickets for children, personal destinations, or accompanying family members without documented business purpose, are includable in income.

For clients in higher-risk environments, enhanced security for company vehicles can qualify as working condition fringes. The key is documented specificity: general safety concerns don’t suffice. There must be evidence of actual threats, such as death threats, kidnapping risks, or recent violent incidents, and security must be part of a comprehensive 24-hour protection program.

De Minimis Fringe Benefits: When “Too Small to Count” Actually Counts

While working condition fringes help employees perform their jobs, de minimis fringes address the smaller perks that boost morale and show appreciation. The standard seems simple: if a benefit’s value is so small that tracking it would be unreasonable or administratively impracticable, employers can provide it tax-free.

But don’t let “too small to count” suggest this category operates without rules. The de minimis standard contains specific requirements, and one absolute prohibition that catches many employers off guard.

The Individual Employee Test

Frequency matters when determining whether a benefit qualifies as de minimis, and the analysis focuses on each individual employee. “Providing a daily meal to a single employee is not a de minimis fringe benefit with respect to that employee,” Wells explains, “even though if we were just looking at the number of meals provided annually to all employees, it might be a relatively small number.”

The exception comes when tracking individual frequency becomes administratively difficult. Wells offers the copying machine example. If an employer ensures at least 85% of use is for business purposes, any personal use qualifies as de minimis. Nobody expects employers to count every personal page, so these rules eliminate that administrative burden.

The Absolute Cash Equivalent Prohibition

Here’s where many well-intentioned employers stumble: cash and cash equivalents are never excludable as de minimis fringes. No exceptions. The rationale is, it’s never administratively impracticable to account for cash.

This creates counterintuitive outcomes that confuse clients. The holiday ham or turkey is the textbook de minimis fringe, literally cited by Congress when explaining IRC Section 132. But when one employer switched from holiday hams to $35 gift certificates for local grocery stores, the IRS ruled those certificates were cash equivalents and thus no longer excludable.

“Even though in terms of frequency and amount, it might appear de minimis, I can specifically and administratively identify how much was spent so that is never going to be excludable,” Wells emphasizes.

Office Snacks and the TCJA Changes

Coffee, donuts, and soft drinks in the office are another classic de minimis fringe benefit. So are occasional meals or meal money provided specifically for employees working overtime, with emphasis on “occasional” and the overtime connection. Company parties, picnics, and group meals (including guests) also qualify.

These categories generated confusion following the 2017 Tax Cuts and Jobs Act. “I saw a lot of social media posts claiming the legislation made office snacks, donuts, and soft drinks nondeductible and includable. Neither one of those is true,” Wells says, clarifying an important misconception.

What actually changed is pre-TCJA, these items were 100% deductible. Post-TCJA, office snacks and occasional meals became 50% deductible. They’re still deductible, just at half the rate. They remain fully excludable from employee compensation.

What did become nondeductible after 2025 are expenses for employer-operated eating facilities—essentially cafeterias that charge employees for food. But basic office snacks are 50% deductible for employers and still tax-free for employees.

Employer-Provided Cell Phones

Cell phones occupy an interesting position, potentially qualifying under both working condition and de minimis rules. The key is why the employer provides the phone.

If they provide it so the employee can be on-call outside normal hours, then the business use qualifies as a working condition fringe and personal use as de minimis. As a result, the entire value is excludable for the employee and deductible for the employer.

However, phones provided to boost morale or included in employment contracts as compensation don’t qualify. The phone must serve the employer’s operational need for employee availability.

Holiday and Special Occasion Gifts

Employers can provide occasional, non-extravagant gifts for holidays, birthdays, achievements, illnesses, or family crises as excludable de minimis fringes. Wells notes these should be “one off or occasional, maybe annual. Probably not more often than that.”

But the cash equivalent prohibition applies fully here. A $35 gift basket is excludable. A $35 gift card to the employee’s favorite restaurant must be included in compensation. Same dollar amount, same thoughtful intent, completely different tax treatment.

Common Pitfalls and Non-Excludable Benefits

Wells identifies several benefits that commonly trip up employers who assume they’re tax-free:

Season tickets to sporting or theatrical events cross the line into reportable compensation, though a single occasional ticket might qualify as de minimis.
Commuting use of employer-provided vehicles remains personal use that must be tracked and potentially reported, even for company-owned vehicles used primarily for business.
Private country club or athletic facility memberships don’t qualify as excludable fringes, despite potential business networking value.
Group term life insurance on a spouse or child creates taxable compensation, as only coverage on the actual employee qualifies for favorable treatment.
Personal use of employer facilities like a beach condo or hunting lodge generates reportable income. Wells notes clients often want to rent cabins for “strategic planning” retreats, but “it would be a stretch to say that was an actual business expense.”

The Documentation Imperative

Throughout the episode, Wells emphasizes that “documentation is key.” Even without nondiscrimination requirements, written policies and records protect both employers and employees.

Best practices include:

Maintaining detailed records of what benefits were provided, when, and to whom
Tracking benefit values even for seemingly trivial items
Ensuring you’ve satisfied substantiation requirements under IRC Section 274
Documenting eligibility criteria in writing

“It’s always best practice to clearly document in writing who earns what kinds of benefits,” Wells advises, “even if there are no nondiscrimination rules for the particular kind of benefit.”

Turning Fringe Benefit Rules Into Client Value

Working condition fringes and de minimis benefits offer employers meaningful ways to support their workforce beyond traditional compensation. Company vehicles enable service technicians. Cell phones keep employees connected. Office coffee makes the workplace pleasant. Holiday gifts acknowledge contributions. When structured correctly, these benefits are deductible for employers and invisible on employee W-2s.

For tax professionals, mastering these distinctions creates immediate value for business clients. Every employer wants to provide meaningful benefits. Guiding them toward tax-efficient structures while avoiding pitfalls demonstrates expertise that justifies advisory relationships.

Listen to the full Tax in Action episode for Jeremy Wells’ complete analysis, including additional examples and nuances not covered here.