Deductible Employee Benefits

You can deduct some types of payments to your employees. Some of the payments you may be able to deduct are listed below. For an explanation of each of these items, see chapter 2 in Publication 535.

Types of Deductible Employee Benefits

• Bonuses
• Employee achievement awards that meet certain requirements
• Loans or advances that you do not expect the employee to repay if they are for personal services actually performed
• Vacation pay
• Pay for sickness and injury
• Cost of furnishing meals and lodging to employees
• Reimbursements for employee business expenses
• Education expenses
• Property you transfer to an employee as payment for services

Fringe Benefits

A fringe benefit is a form of pay provided to any person for the performance of services by that person. You can deduct the cost of fringe benefits you provide. However, you must include in your employees’ pay the value of fringe benefits you provide unless the benefits are specifically excluded from income by law. The following are examples of fringe benefits:

• The use of a car
• Flights on airplanes
• Discounts on property or services
• Memberships in country clubs or other social clubs
• Tickets to entertainment or sporting events

For information on the rules that apply to fringe benefits, see chapter 4 in Publication 535. That chapter explains how to value fringe benefits and how to determine whether fringe benefits are excludable from your employees’ incomes.

Employee Benefit Programs

You can generally deduct amounts you spend on employee benefit programs as a business expense. You can also generally exclude from an employee’s income the value of part or all of the benefits you provide. Employee benefit programs include the following:

•     Accident and health plans
•     Adoption assistance
•     Cafeteria plans
•     Dependent care assistance
•     Educational assistance
•     Group-term life insurance coverage
•     Welfare benefit funds

More Information

For more information about employee benefit programs, see chapter 5 in Publication 535. That chapter explains what costs you can deduct and which part of the benefits you can exclude from an employee’s income.

Source: Publication No. 334