Publication 15-B Employer'S Tax Guide To Fringe Benefits

has not reached age 25. Treat a child of divorced parents

No-Additional-Cost Services

as a dependent of both parents.

Treat any use of air transportation by the parent of an

This exclusion applies to a service that you provide to an

employee as use by the employee. This rule does not

employee if it does not cause you to incur any substantial

apply to use by the parent of a person considered an

additional costs. The service must be offered to customers

employee because of item (3) above.

in the ordinary course of the line of business in which the

employee performs substantial services.

Exclusion from wages. You can generally exclude the

Generally, no-additional-cost services are excess ca-

value of a no-additional-cost service that you provide to an

pacity services, such as airline, bus, or train tickets; hotel

employee from the employee’s wages.

rooms; or telephone services provided free or at a reduced

Exception for highly compensated employees. You

price to employees working in those lines of business.

cannot exclude from the wages of a highly compensated

employee the value of a no-additional-cost service that is

Substantial additional costs. To determine whether or

not available on the same terms to one of the following

not you incur substantial additional costs to provide a

groups.

service to an employee, count any lost revenue as a cost.

•

Do not reduce the costs you incur by any amount that the

All of your employees, or

employee pays for the service. You are considered to incur

•

A group of employees defined under a reasonable

substantial additional costs if you or your employees spend

classification you set up that does not favor highly

a substantial amount of time in providing the service, even

compensated employees.

if the time spent would otherwise be “idle” or if the services

are provided outside of normal business hours.

For this exclusion, a highly compensated employee for

2003 is an employee who meets either of the following

Reciprocal agreements. A no-additional-cost service

tests.

provided to your employee by an unrelated employer may

qualify as a no-additional-cost service if all the following

1) The employee was a 5% owner at any time during

tests are met:

the year or the preceding year.

•

The service is the same type of service generally

2) The employee received more than $90,000 in pay for

provided to customers in both the line of business in

the preceding year.

which the employee works and the line of business

You can choose to ignore test (2) if the employee was not

in which the service is provided.

also in the top 20% of employees when ranked by pay for

•

You and the employer providing the service have a

the preceding year.

written reciprocal agreement under which a group of

employees of each employer, all of whom perform

Retirement Planning Services

substantial services in the same line of business,

may receive no-additional-cost services from the

You may exclude from an employee’s wages the value of

other employer.

any retirement planning advice or information that you

•

provide to your employee or his or her spouse if you

Neither you nor the other employer incurs any sub-

maintain a qualified retirement plan. In addition to em-

stantial additional cost either in providing the service

ployer plan advice and information, the services provided

or because of the written agreement.

may include general advice and information on retirement.

However, the exclusion does not apply to services for tax

Employee. For this exclusion, treat the following individu-

preparation, accounting, legal, or brokerage services.

als as employees.

Transportation (Commuting) Benefits

1) A current employee.

2) A former employee who retired or left on disability.

This section discusses exclusion rules that apply to bene-

fits that you provide to your employees for their personal

3) A widow or widower of an individual who died while

transportation, such as commuting to and from work.

an employee.

These rules apply to the following transportation benefits.

4) A widow or widower of a former employee who re-

•

De minimis transportation benefits.

tired or left on disability.

•

Qualified transportation benefits.

5) A leased employee who has provided services to

you on a substantially full-time basis for at least a

Special rules that apply to demonstrator cars and qualified

year if the services are performed under your pri-

nonpersonal-use vehicles are discussed under Working

mary direction or control.

Condition Benefits on page 16.

6) A partner who performs services for a partnership.

De Minimis Transportation Benefits

Treat services that you provide to the spouse or depen-

dent child of an employee as provided to the employee.

You can exclude the value of any de minimis transportation

For this fringe benefit, “dependent child” means any son,

benefit that you provide to an employee from the

stepson, daughter, or stepdaughter who is a dependent of

employee’s wages. A de minimis transportation benefit is

the employee, or both of whose parents have died and who

any transportation benefit that you provide to an employee

Page 14

Publication 15-B Employer'S Tax Guide To Fringe Benefits - 2003 Page 14

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