Many workers today seek employers who prioritize mental health and wellness. Initiatives like employee work/life referral (WLR) programs are becoming popular ways to meet these expectations, and the IRS is entering the conversation with new guidance on how these types of programs are taxed.
WLR programs include services that assist eligible employees with identifying, contacting, and negotiating with resources to address personal, work, or family challenges. In its recently issued Fact Sheet 2024-13, the IRS offers a list of examples, including:
- Identifying appropriate education, care, and medical service providers.
- Choosing a child or dependent care program.
- Navigating eligibility for government benefits, including Veterans Administration benefits.
- Evaluating and using paid leave programs offered by an employer, state, or locality.
- Locating home services professionals specializing in adapting a home for a family member with special care needs.
- Navigating the medical system, including private insurance and public programs, and utilizing available medical travel benefits.
- Connecting the employee with local retirement and financial planning professionals.
The benefits are often available through third-party providers and charged to the employer on a per-eligible-employee basis. Although many employees value these services as essential to a benefits package, few tend to utilize them. They also tend to be offered with a level of anonymity, which can make employee usage of the benefit challenging to track. Therefore, the recently issued IRS Fact Sheet deems that most WLR programs are de minimis fringe benefits or benefits that are “so small as to make accounting for it unreasonable or administratively impracticable.” De minimis benefits are excluded from gross income and are not subject to income or employment taxes.
However, don’t assume that any WLR or other services you offer employees escape taxation in this way. Ask your tax advisor. Bundling them with other benefits or including some sort of cash or gift card component, for instance, can turn them from a de minimis to a taxable fringe benefit. Feel free to contact us with questions.
