Are employee assistance programs taxable?

Employee assistance programs that offer minimal mental health counseling and concierge services are tax-exempt, but are often underutilized. For more than 20 years, employers' focus on employee health has focused on rising insurance costs, and with the advent of individual and employer mandates, that approach has nearly overshadowed all other employer-related health issues.

Are employee assistance programs taxable?

Employee assistance programs that offer minimal mental health counseling and concierge services are tax-exempt, but are often underutilized. For more than 20 years, employers' focus on employee health has focused on rising insurance costs, and with the advent of individual and employer mandates, that approach has nearly overshadowed all other employer-related health issues. It's time to look beyond insurance premiums to address the real cost of illness in the workforce. EAPs are programs that are often offered by employers and that can provide a wide range of benefits to address circumstances that could otherwise adversely affect employees' work and health.

Benefits may include referral and counseling services for short-term substance use disorders or mental health, as well as financial counseling and legal services. By focusing on short-term support in critical cases and on preventive and proactive stress management, EAPs can combat both presenteeism and absenteeism. They are generally available free of charge to employees and are often provided through third-party vendors. Appropriate taxation of EAPs in the U.S.

UU. It's an area where there's alarmingly little guidance, and the wide variety of benefits and program structures makes it a difficult area to address. 8 See IRS Publication 15-B, Tax Guide for Employers on Supplemental Benefits, which doesn't include any mention of employee assistance plans. In general, the topic of taxation is simply avoided altogether.

There are two main ways to justify this approach. First, the employer can treat the EAP as a health plan. As discussed above, this approach is incompatible with the dissociation of EAP from health benefits. In addition, it is difficult to justify this approach when the EAP does not provide significant medical benefits and provides a range of non-medical services.

Once the EAP is disassociated from the health plan, the employer can look beyond the costs of health insurance, which are too vulnerable to the market, and to regulatory pressures, to provide a good measure of the effectiveness of the EAP. The return on investment of the EAP is the contribution to the human capital of organizations. Unfortunately, long-term results can be difficult to isolate and short-term measurement presents challenges. The impact on absenteeism and retention will be easier to measure than the impact on presenteeism, individual performance, improved conflict resolution and organizational structure.

Another area that could be measured is safety at work. Employers will want to work closely with their EAP providers to determine how the return on investment will be measured in advance and to improve and modify measurement methods as the program develops, 12See, g. When developing tools for estimating and evaluating return on investment, integration and coordination between other human resource functions should be considered. In organizations without a strong EAP, human resources staff serve as unofficial EAP resources for employees facing life situations or crises.

Responsibilities generally fall on the human resources employee appointed to help management maintain productivity levels, the employee responsible for managing leave, benefit administrators and direct supervisors. When developing an EAP program, those functions should be evaluated to clearly determine and define the limits and functions of the EAP, avoid duplication, and be integrated with the organization's objectives. The clear definition of the structure presents opportunities for risk mitigation and profitable operations by creating structural boundaries between assistance and discipline. The planning and development stage should not be overlooked and should also involve organizational stakeholders in a careful review of labor law obligations.

Learn more about subscribing to Bloomberg Law. Find the answers to all your customers' questions about Social Security and Medicare in this essential Quickfinder manual from Thomson Reuters Checkpoint. To determine if your plan meets this test, do not consider employees who are covered by a collective bargaining agreement excluded from your plan if there is evidence that adoption assistance was the subject of good faith negotiations. However, food or drink expenses related to employee recreation, such as Christmas parties or annual picnics, are not subject to the 50% limit on deductions when they are made primarily for the benefit of their employees, except employees who are civil servants, shareholders or other owners who own a 10% or more participation in your company or other highly paid employees.

One factor that indicates whether it is unsafe is the history of crimes in the geographical area surrounding the employee's workplace or home at the time of day the employee travels to work. Another way for an employer to provide its employees with tax-free financial assistance is to establish an employee assistance fund. In addition, federal income tax withholding is not required on income resulting from a disqualifying disposal of shares acquired through the exercise of a stock incentive option or an employee stock purchase plan option, or on income equal to the discounted share of shares acquired through the exercise of an employee stock purchase plan option resulting from any qualifying stock disposition. For all coverage provided within the calendar year, use the employee's age on the last day of the employee's fiscal year.

The hidden cost of the informal program is likely to be the reduction in the effectiveness and morale of the human resources function within the organization and the increase in exposure to litigation resulting from the lack of definition of the lines between employee support and employer discipline. Treat the services you provide to an employee's spouse or dependent child as they are provided to the employee. In general, you can exclude from the employee's salary the value of a service at no additional cost that you provide to an employee. In addition, the existence of one or more of the following factors may also establish that the program is not a genuine product testing program.

Because of the perception of public oversight, a public charity (EAF) can generally provide a wider range of assistance to employees than can be provided by funds advised by donors or private foundations. An employee who is among the top 25% of all employees (except those who may be excluded from the plan). You provide meals to your employee for convenience if you do so for an important business reason other than providing the employee with additional pay. You cannot exclude from the salary of a highly paid employee retirement planning services that are not available on the same terms to all members of a group of employees who normally receive education and information about the employer's qualified retirement plan.

You can exclude from the employee's salary the value of the accommodation you provide to an employee if you meet the following tests:. An employee who transfers interest in non-legal stock options to the employee's ex-spouse incident or divorce is not required to include an amount in gross income at the time of the transfer. . .

Rebecca Segalla
Rebecca Segalla

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