Employee tax-free income

Unused compensation reductions and employee tax-free incomeMost income from your employer quickly ends up on a W-2 tax form at the end of the year. However, some common employee benefits often avoid the impact of Federal taxes. Here is a list of employee tax-free income and what you should know about them.

Typical employee tax-free income

Health benefits. While now reported on W-2s, employer-provided health insurance premiums are not required to be reported as additional income by the employee. This includes premiums paid for the employee and qualified family members. In addition, the employee portion of premiums can be paid in pre-tax dollars.

Company Health Savings Account (HSA) contributions. Up to specified dollar limits, a qualified individual’s cash contributions to the HSA are exempt from the following:

  • Federal income tax withholding
  • Social security tax
  • Medicare tax
  • FUTA tax

Group term life insurance. You can generally exclude the cost of up to $50,000 of group-term life insurance from your wages.

More benefits to maximize savings

Credit card airline miles. Generally, credit card benefits like miles are not taxable income. So, those miles earned on corporate credit cards that go to you as an individual are not likely to increase your tax bill.

Employee tuition reimbursement. Up to $5,250 of tuition reimbursement from your employer is not additional taxable income.

Commuting expenses. You can generally exclude the value of transportation benefits you receive up to $300 per month for combined commuter highway vehicle transportation and transit passes. There is also up to $300 monthly for tax-free qualified parking benefits.

Small gifts. Small-valued gifts are not included in income, such as:

  • Using the company copy machine
  • Occasional meals
  • Reasonably priced holiday gifts
  • Tickets to a sporting event

Knowing what employee benefits are tax-free income can help you maximize their use to your greatest advantage. Please feel free to contact our RRBB advisors with any questions you may have.


Get free tax planning and financial advice