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The IRS has released frequently asked questions (FAQs) in Fact Sheet 2024-13 clarifying that the value of certain work-life referral services provided by an employer to an employee can be excluded from gross income subject to federal income tax (FIT), and wages subject to (1) federal income tax withholding (FITW), (2) employer and employee Social Security/Medicare (FICA) and (3) federal unemployment insurance (FUTA).

Work-life referral services are an employer-funded fringe benefit that provide eligible employees with informational and referral consultations for various life-management issues, such as identifying medical service providers, finding professionals who can adapt a home for a family member with special needs, and navigating eligibility for government benefits. These services are usually provided by a third party that charges a per-employee monthly fee regardless of actual use, and they tend to be used infrequently by employees facing a particular challenge. As the FAQs emphasize, anonymity is an important feature of these arrangements due to the highly sensitive personal information involved.

Requirements for treating work-life services as a de minimis fringe benefit

Under IRC Section 61, gross income includes a fringe benefit provided by an employer to an employee unless it is specifically excluded. IRC Section 132(a)(4) excludes de minimis fringe benefits from gross income. For purposes of FITW, FICA, and FUTA, "wages" do not include any benefit that an employee could reasonably expect to exclude from income under IRC Section 132.

IRC Section 132(e) defines a de minimis fringe to include a service with a value so small that accounting for it is unreasonable or administratively impracticable, after taking into account the frequency with which similar fringes are provided by the employer to its employees. Under Treas. Reg. Section 1.132-6(b)(2), an employer can reference the frequency with which fringe benefits are provided to the entire workforce if the employer can establish that it would be administratively difficult to determine the frequency with which the employer provides the benefits to each individual employee.

The FAQs state that employer-provided work-life referral services are excluded from gross income and wages as a de minimis fringe benefit.

Limitations

The FAQs only address federal taxes (not state or local taxes) and "do not address the direct or indirect payment for the life-management resources or other services offered through an EAP [employee assistance program] or that may be bundled with a [work-life referral] program."

Implications

These FAQs provide some insight into the IRS's thinking but are not substantively binding on the government. Taxpayers who rely on them reasonably and in good faith, however, will not be subject to certain penalties. Moreover, the FAQs contain substantive limitations that will make them inapplicable in many cases. In particular, they explicitly do not address the very common situation in which work-life referral services are offered through an EAP or are bundled with other services. It is not clear whether the rationale underlying the FAQs should be limited to their narrow scope or could extend to EAP benefits or other similar benefits that employees use anonymously and only under unusual circumstances.

Employers providing work-life referral services or similar benefits to their employees without treating them as taxable wages should maintain records demonstrating that they meet the de minimis fringe requirements or have some other basis upon which they are excludable from wages.