When sending employees away from their home base on business, it helps to have an at-home environment where your employees can feel comfortable. This helps them to get the job done and keeps employee morale at a high. It’s even more of a bonus if you both gain a tax benefit from the situation; in this respect, it helps to understand the corporate tax laws and to deal with a corporate housing company that also understands these same rules.
While it is expected for employers to pay for corporate housing when employees are sent to a new town or on location for temporary work, how the deal is structured can make a difference when it comes to what you can claim and to the employee’s tax.
Knowing what can and cannot be claimed and what logistics to use can make the most out of the situation, ensuring more satisfied employees and a better bottom line for employers.
What Tax Deductions Are Available for Employers?
Surprisingly, not only is the accommodation deductible, you can offer to pay for some of the employee’s meals and transport.
The current tax legislation allows for the full cost of accommodation including all utilities to be claimed. The full cost of transportation for getting to and from work from the residence is also tax deductible as a valid business expense.
Half of the costs of employees’ meals are permitted.
What are the Limitations on Corporate Housing Deductions?
To qualify as a business expense, there are conditions related to housing which must be met.
Corporate housing must not be in the same city as the employee’s current residence. The duration of stay must be temporary and for tax purposes, temporary is defined as one year or less.
Finally, and rather obviously, the stay must be for a business purpose. That is, you cannot sponsor an employee vacation as a bonus, or rather you can, but, it will not be considered a valid business expense, and so not tax deductible.
For Employees, Accounting Methods Can Make a Big Difference
When an employee pays for his or her accommodation and then claims the amount back, the amount will be declared on the employee’s W-2 form. Because it is on the tax form, employees need to declare this as income, which creates quite a bit more paperwork and expenses for them.
If accommodation is paid directly by an employer, the expense is not included on W-2 forms and is not considered part of the employee’s income, although they may have to still declare it as a fringe benefit.
Benefits of Using a Corporate Housing Company
A company specializing in corporate, residential leasing will be able to provide detailed accounts for expenses, often including utilities, and you may be able to discuss the inclusion of allowances or accounts for meals or services.
A corporate housing company will find a turn-key rental for employees with everything that they need. They consider location, logistics, access to internet and everything else related to a short term stay for business purposes – and they do all the leg work.
Further Guidance from the IRS
To gain more information about corporate housing tax deductions, the IRS provides guidance brochures Publication 463 Travel, Entertainment, Gift, and Car Expenses, and Publication 15b, Employers Guide to Fringe Benefit Taxes.
People often forget that when it comes to tax, the IRS is there to help.