Is employee assistance program a taxable benefit?

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.

Is employee assistance program a taxable benefit?

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. This month, we outlined the key things to know when it comes to taxable and non-taxable benefits. To make sure you're organized year-round, we define what's taxable and what's not taxable and highlight what reports to refer to when it's time to file your taxes. Every year, organizations submit their business expenses to the CRA to pay their taxes; however, group health benefits have complicated stipulations about what is considered a subject or non-taxable benefit.

To quickly determine your organization's taxable and non-taxable benefits, our team created a reference sheet to demonstrate the CRA's fiscal status for common health benefits. Employee assistance programs (EAPs) are generally fully deductible for tax purposes. EAPs take a variety of forms and may include counseling programs related to substance abuse, family problems, and other similar issues that adversely affect employee productivity. Medical coverage, employee assistance programs (EAP) and dental coverage are examples of non-taxable benefits.

The employer, therefore, can choose which employees it wants to reimburse, including highly paid employees. An EAF structured as a private foundation can only provide assistance to employees or family members affected by a qualifying disaster (as defined in Section 13), but not for other disasters or difficult emergencies. This includes the expenses you pay to set up and manage the program and the contributions you make to employee accounts. Another way for an employer to provide its employees with tax-free financial assistance is to establish an employee assistance fund.

The article analyzes the wide variety of EAP programs that are included in packages with insurance or other services and compares these integrated programs with standalone paid programs. Under Section 139, qualified disaster relief payments made by an employer directly to an employee are not taxable for the employee and are not subject to employment taxes or withholding. On the other hand, EAPs are designed to provide support to employees dealing with life events that would be considered occasional, so even if the program is consistently available, the benefit itself isn't. EDUCATIONAL ASSISTANCE PROGRAMS In addition to scholarships and grants, another known method for providing educational opportunities to employees is the assistance program under section 127.This type of qualified relief payment could include payments made by an employer to an employee for medical and health expenses: expenses related to COVID-19, additional expenses related to child care and home education as a result of school closures, expenses incurred due to quarantine enforcement and funeral expenses for an employee or family member who dies from COVID-19 due to the perception of public oversight, a public charity EAF can generally provide a wider range of assistance to employees than funds advised by donors or foundations can provide Private.

Their survey suggests that cost-conscious employers, particularly smaller employers, chose integrated EAP programs without fully understanding or appreciating the potential value that an EAP can provide and that integrated programs have lower utilization, as well as lower perceived and realized value. If these requirements are met, payments from the public charity EAF to an employee and their family members in response to a disaster or difficult emergency situation are presumed to be made for charitable purposes and do not constitute taxable compensation for the employee. The requirement that the program be non-discriminatory can make it expensive depending on the number of eligible employees who take advantage of it. .

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Rebecca Segalla
Rebecca Segalla

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