Guide to Employer-Provided Fringe Benefits: What Is Excludable from Income

If you work in the United States 🇺🇸 and your employer offers FRINGE BENEFITS, the tax rules decide whether those benefits count as taxable pay or can be excluded from your income. In simple terms: most benefits given “for doing your job” are taxable unless you pay fair market value for them or the law says they can be excluded. What shows up on your Form W-2 matters for your refund and your status with payroll and benefits teams, so review it closely each year.

Who can claim exclusions and what qualifies

Employees may exclude specific benefits from income when the law allows. Key categories include:

• Accident or health plan: The value of employer-provided coverage is generally not income. Later cash benefits might be taxable under sickness and injury rules.
• Long-term care coverage: Employer contributions for coverage are generally excluded. However, contributions made through a flexible spending arrangement (like a cafeteria plan) are taxable and appear as wages in Box 1 of Form W-2.
• Archer MSA contributions: Employer contributions are generally excluded. The total appears in Box 12 of Form W-2 with code R. You must report this on Form 8853 (Archer MSAs and Long-Term Care Insurance Contracts) and file it with your return.
• Meals and lodging: You can exclude the value if provided on the employer’s premises for the employer’s convenience.
• Health flexible spending arrangement (health FSA): If it qualifies as an accident or health plan, salary reduction and reimbursements for medical care for you, your spouse, and dependents are excluded.
• Health reimbursement arrangement (HRA): If it qualifies as an accident or health plan, coverage and reimbursements for medical care for you, your spouse, and dependents are excluded.
• Health savings account (HSA): Employer contributions are excluded. Distributions used for qualified medical expenses are excluded; nonqualified distributions are taxable and may face early withdrawal penalties. Report contributions on Form 8889.
• De minimis benefits: Small items where tracking cost is unreasonable (like coffee or doughnuts) are excluded.
• Holiday gifts: Turkeys, hams, or similar items of nominal value are excluded. Cash, gift certificates, or items easily exchanged for cash are taxable as wages regardless of amount.
• Dependent care assistance: You may exclude up to $5,000 (or $2,500 if married filing separately).
• Adoption assistance: For 2023, exclude up to $15,950 per eligible child for special needs adoptions (even with no qualified expenses). For other adoptions, exclude the lesser of qualified expenses or $15,950 per child.
• Educational assistance: Exclude up to $5,250 in qualified employer-provided assistance (tuition, fees, books, supplies, and equipment). Meals, lodging, transportation, tools, or supplies you keep after the course don’t qualify. Sports, games, or hobbies don’t qualify unless tied to the employer’s business or required for a degree.
• Moving expense reimbursements: Qualified reimbursements are generally excluded. However, the TCJA repealed this exclusion for tax years 2018–2025 (except for members of the Armed Forces). For 2018–2025, employer-paid moving expenses are taxable wages and subject to withholding.
• Group-term life insurance: The cost of up to $50,000 of coverage is excluded. The cost of coverage over $50,000, reduced by what you pay, is taxable. If the policy has permanent benefits (like cash value), include the cost of those benefits minus what you paid as wages.
• Retirement planning services: Qualified retirement planning advice and information provided by the employer are excluded. Tax prep, accounting, legal, or brokerage services are not.
• Transportation (2023 limits): You may exclude up to $300 per month for combined transit passes and commuter highway vehicle transportation, and up to $300 per month for qualified parking.
• No additional cost services: Exclude services your employer offers to customers in the same line of business if providing them to you adds no substantial cost (for example, extra airline seats, hotel rooms, or telephone services).
• Athletic facilities: Exclude use of employer-owned facilities if substantially all use is by employees, spouses, and dependent children.
• Employee discounts: Exclude discounts on merchandise up to the employer’s gross profit percentage, and on services up to 20% of the price charged to the public.
• Qualified retirement plan contributions: Employer contributions are not taxed when contributed; withdrawals later are taxed. Elective deferrals (not designated Roth) aren’t taxed for income tax at contribution, but are subject to Social Security and Medicare taxes.

Employee achievement awards: eligibility and limits

You can exclude awards of tangible personal property for length-of-service or safety achievement, but not cash or cash-like items. The law defines “tangible personal property” and excludes cash, cash equivalents, most gift cards, vacations, meals, lodging, event tickets, stocks, bonds, and similar items.

• The exclusion is limited to the employer’s cost and capped at $1,600 for all awards in the year ($400 if the awards aren’t qualified plan awards).
• Awards must be part of a meaningful presentation and not disguised pay.
• No exclusion for a length-of-service award under 5 years, or if you received another such award in the last 4 years.
• No exclusion for safety awards to managers, administrators, clerical, or other professional employees, or if more than 10% of eligible employees received safety awards that year.

Example from the rules:
– Ben Green received three awards—a nonqualified plan watch worth $250 and two qualified plan awards of a stereo worth $1,000 and golf clubs worth $500.
– Even though each award alone would be excluded, the total is $1,750, which exceeds the $1,600 cap.
– Ben must include $150 in income.

Documents to keep and official forms

Keep plan documents, benefit summaries, and year-end statements. Pay attention to:

• Form W-2 (about the form: https://www.irs.gov/forms-pubs/about-form-w-2): Check Box 1 wages and Box 12 (code R) for Archer MSA employer contributions.
• Form 8853 (Archer MSAs and Long-Term Care Insurance Contracts): https://www.irs.gov/forms-pubs/about-form-8853
• Form 8889 (Health Savings Accounts): https://www.irs.gov/forms-pubs/about-form-8889

For broader official guidance, see IRS Publication 15-B (Employer’s Tax Guide to Fringe Benefits): https://www.irs.gov/publications/p15b

Important: Keep documentation that supports any exclusion you claim—plan summaries, benefit statements, receipts, and employer communications. These help if the IRS questions your return.

How to apply these rules during tax time

1. List every benefit you received from your employer last year.
2. Match each item to the categories above to see if it’s excluded or taxable.
3. Review your Form W-2 to confirm taxable amounts were included and excluded benefits were handled correctly.
4. If you have an Archer MSA or HSA, complete and file Form 8853 or Form 8889 as required.
5. If something looks off, ask payroll for a corrected Form W-2 before you file.

Practical tips for workers new to U.S. payroll

• Ask HR whether your health FSA, HRA, or HSA is an Accident or health plan so you know how reimbursements are treated.
• Keep receipts for medical, dependent care, education, and adoption costs in case your return is questioned.
• Remember: employer-paid moving expenses are taxable for 2018–2025 (except for members of the Armed Forces), so plan for withholding.
• For holiday gifts, non-cash items of nominal value are fine, but cash or gift cards are taxable wages.
• For group-term life insurance, check if coverage exceeds $50,000; the extra cost may show as taxable on your Form W-2.

According to analysis by VisaVerge.com, careful review of year-end pay documents helps many workers confirm that exclusions were applied correctly and avoid surprises at filing time.