Possible Tax on Employee Fringe Benefits Could Impact Office Returns, Morale

Impact of Return-to-Office Policies on Employee Fringe Benefits

As employees start returning to their workplaces in greater numbers, they could begin to notice that some of the benefits attached to their commute, which are provided by their employers, might be worth less or could even vanish completely.

Proposed Taxation on Employee Benefits

House Republicans are considering a series of measures to offset the loss of revenue from trillions of dollars’ worth of tax cuts introduced during President Donald Trump’s administration. One of these measures involves taxing employees for certain fringe benefits like employer-provided transportation, free meals and access to on-site gyms. Find out more about these potential measures.

Current Tax Benefits for Employees

At present, employer-provided transportation benefits, such as transit passes and parking, up to a limit of $315 per month, are excluded from taxable income. Additionally, certain perks like employer-provided meals, lodging, and on-site gym facilities for employees and their families are also excluded from taxable income. These new taxation proposals could result in savings of around $157 billion over the course of 10 years, according to Republican estimates.

Cost of Tax Cuts and Federal Deficit

These proposals are still in the early stages of discussion and lawmakers are trying to accommodate Trump’s $4 trillion extension of the 2017 tax cuts, along with other campaign promises for tax breaks. The total cost of these tax cuts could reach almost $10 trillion, a daunting figure considering the enormous $36 trillion federal deficit.

Employee Reaction to Proposed Taxation of Fringe Benefits

According to Dustin Stamper, tax legislative affairs practice leader at Grant Thornton’s Washington National Tax Office, taxing employees for these benefits might not sit well with them, making the proposal difficult to enact. In the past, similar proposals have been debated but never made it off the ground, as Thomas Godwin, a professor at Cornell University’s SC Johnson College of Business, points out.

Uncertainty Around Proposed Tax Measures

The outcome of these proposals remains uncertain, especially considering the substantial revenue required to offset the cost of such generous tax cuts. If enacted, these measures could have a significant impact on both employees and employers.

Impact of Taxation on Employee Morale and Productivity

Changes to benefits that employees have become accustomed to could negatively impact employee morale and productivity. For example, if employees are suddenly charged for parking services that were previously free, it could create a lot of discontent, particularly in urban areas where parking is usually charged for. As more companies are pushing for employees to return to the office, issues like these could pose a significant challenge.

Alternative Perks Offered by Employers

Companies might be forced to reconsider their benefits packages, and could end up dropping some and substituting them with other perks that are not taxable. Such alternatives could include financial education, coaching, and planning, which could have a more significant impact on an employee’s financial well-being, according to John Jurik, national practice leader of retirement plan consulting at Gallagher.

Competition Among Employers

Employers’ approaches to these changes could vary according to factors like employee demand, location, demographics, and competition for talent. Companies may continue to offer these perks, either at the employee’s expense or by absorbing the cost themselves, depending on their competitors’ approaches, suggests Norman Richter, adjunct lecturer at Babson College who teaches classes on tax policy.

Finding Revenue for Tax Cuts

Funding those extensive tax cuts would undoubtedly require raising “big dollars,” says Chester Spatt, professor of finance at Carnegie Mellon University’s Tepper School of Business. However, he remains skeptical that Congress will decide to tax employees’ fringe benefits, given the relatively small expected savings compared to other, easier to implement options.