IRS Guidelines on Housing Allowances for Employees

The Internal Revenue Service (IRS) offers guidance on housing allowances for employees, which are classified as lodging expenses that can affect both tax obligations and business deductions. Depending on the situation, certain housing and living benefits may be subject to taxation for the employee, while also potentially qualifying as a deductible business expense for the employer.

Types of Employee Housing Arrangements

Employers have various options for providing housing benefits to employees, such as offering a housing allowance for employees to choose their own accommodation, assigning specific housing locations, or providing temporary lodging for business travel.

Taxes and Housing Benefits

When an employer covers lodging expenses for employees, these costs are typically tax-deductible as a business expense if they are deemed ordinary and necessary. However, housing benefits provided to employees may be taxable unless specific conditions are met.

Conditions for Non-Taxable Employee Housing

Employee housing benefits can be non-taxable if the housing is provided on the employer's property, is for the employer's convenience due to a substantial business reason, and is accepted as a condition of employment.

Restrictions and Reporting

There are restrictions on taxable housing benefits, such as excluding them from cafeteria benefits plans and reporting any taxable housing on the employee's annual W-2 form. Payments for housing must adhere to specific criteria to avoid tax implications for employees.

Overseas Employee Housing

For overseas employees, the value of lodging may not be taxable if certain requirements are met, including housing being at the business location and for the company's convenience, with the employee accepting it as a condition of employment.

Changes in Tax Law

Under the 2017 Tax Cuts and Jobs Act, unreimbursed housing expenses are no longer deductible for employees, emphasizing the importance of understanding and complying with current regulations on employee housing benefits.

Employer-Provided Housing Agreements

Providing housing for employees establishes a landlord-tenant relationship, necessitating a signed agreement to ensure compliance with state laws. Consulting with an attorney can help navigate the legal aspects of offering housing benefits to employees.