John, who is President and CEO of ZZZ Corporation which owns the ZZZ hotel chain, is working with his Human Resources department to design an employee fringe benefits package. He would like employees to receive discounts on goods and services provided by the corporation, would like to provide free hotel rooms to employees, would like to provide transit passes or pay for parking in metropolitan
areas, and would like to provide recreational and athletic facilities. What issues should John consider in designing his package?
What will be an ideal response?
All of the desired can be provided in a tax-advantaged manner so employees can enjoy these benefits without taxation if they are established and managed in accordance with requirements of the tax law. John should be aware that the company must comply with anti-discrimination requirements to protect the tax-free status of most employee benefits, but some employee fringe benefits (working condition fringes, for example) can discriminate in favor of highly compensated individuals without triggering taxable income. In addition, he should determine the requirements for nontaxability of no-additional-cost fringes (free hotel rooms), the maximum discounts allowed on goods and services to ensure nontaxability, as well as the rules for exclusions from income for nondiscriminatory parking and transit passes, etc. In addition, if exclusion status is achieved, the company will enjoy savings on payroll taxes.
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