Skilled and caring employees are the backbone of a successful healthcare practice, but the competition for these talented workers is fierce. A well-designed benefits package is essential to attracting quality employees and increasing engagement among your current staff.
Such a package goes beyond the basics of health insurance, paid leave, and retirement plans to include fringe benefits that meet the needs of your employees. Here are four tax-free fringe benefits we think are worth a closer look:
1. Tuition Assistance Program
Qualified Education Assistance Program
Under this program, an employee may receive up to $5,250 each year, tax-free, for educational assistance. “Education” means instruction or training that improves or develops an employee’s capabilities, whether job-related or as part of a degree program—including graduate-level courses.
The educational assistance must be provided under a separate written plan that you publicize to your employees. It must also meet certain conditions, including nondiscrimination requirements. For example, the employer can’t discriminate in favor of highly compensated employees.
Working Condition Fringe Benefit
An employee may receive tax-free financial assistance for job-related education. This working condition benefit has no dollar limit, but the education must relate to maintaining or improving skills required by the employee’s current job. Or it must help an individual comply with certain employer-imposed conditions for continued employment.
To be job-related, the education cannot qualify the employee to meet the minimum educational requirements necessary for employment or other trade or business.
Unlike the qualified education assistance program, the working condition exclusion is not subject to nondiscrimination requirements. This means the employer can selectively provide educational assistance as a fringe benefit.
2. Student Loan Repayment Benefits
Your employees may be eligible for a student loan repayment benefit. As the employer, you can make tax-free payments of up to $5,250 annually on the principal or interest on any qualified higher education loan. A few conditions to keep in mind:
- The repayment benefit applies only to the employee, not a spouse or dependent.
- To be eligible for the tax benefits, student loan payments must be made after March 27, 2020, and before Jan. 1, 2026.
- This benefit may be combined with the overall $5,250 per employee limit under a Qualified Education Assistance Program and be subject to nondiscrimination requirements.
3. Expense Reimbursement under Accountable Plan
Employees often incur reimbursable expenses in connection with their jobs, such as airfare, hotels, and meals. An accountable plan allows an employer to reimburse employees on a non-taxable basis when certain requirements are met. Documenting the plan is not required but must be an established policy.
To offer an accountable plan, an employer must comply with three rules:
- The expenses must have a business connection. These are expenses an individual incurs when performing services as an employee for the entity. The reimbursement or advance must be a payment for the expenses. It must not be an amount you would have otherwise paid as an employee wage.
- The expenses must be substantiated within a reasonable period. The employee must submit documentation regarding the expenses incurred to substantiate the expense. The employee must verify the date, time, place, business purpose, and amount of the expenses and then provide receipts to the employer.
- The employee must return money not spent to the employer within a reasonable period. Some employers give their employees an expense allowance in advance of when the employee incurs the expenses. When this happens, the employee must return any excess allowance over the expenses incurred. If the excess is not returned, it is includible in wages.
Accountable plans encourage employees to promote business goals. They also help a business owner recapture expenses paid on behalf of the company without fear of the payments being treated as compensation or as an equity contribution.
4. Employee Discount Plan
Discount plans are a popular and easy way to incentivize employees. Qualified employee discounts are excludable from an employee’s taxable income. A discount qualifies if:
- In the case of property, it does not exceed the gross profit percentage of the price at which the property is offered to customers; or
- In the case of services, it does not exceed 20% of the price at which the services are offered to customers.
Qualified property does not include real property or property of a type commonly held for investment. Qualified property and services must be offered for sale in the ordinary course of the taxpayer’s trade or business in which the employee provides services.
Fringe benefits are an excellent way to attract and retain the best employees—and thus protect your successful practice. If you offer a benefits plan, review it carefully to ensure it meets your employees’ needs and aligns with the latest regulations and statutes.
Elevate Your Benefits Plan with Help from Aldrich
Our Aldrich healthcare experts are here to help you optimize your practice. Our deep industry experience means we understand the nuances of employee benefits in healthcare. If you have questions about employee fringe benefits, let’s talk.
This article first appeared in the Portland Business Journal on July 21, 2023. You can read it here.
Meet the Author
Jamie Choi, CPA
Jamie Choi joined the firm in 2013 and specializes in tax compliance, planning, and consulting services for businesses and individuals, primarily in the healthcare industry. She enjoys helping clients realize their goals and full financial potential. Jamie received her Bachelor’s degree in Management Science from the University of California, San Diego, and a Master of... Read more Jamie Choi, CPA
- Tax Planning
- Healthcare Consulting