Employee assistance programs (EAPs) are a great way for employers to provide their employees with a wide range of benefits to address circumstances that could otherwise adversely affect their 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. EAPs are generally available free of charge to employees and are often provided through third-party vendors. But is employee assistance program a taxable benefit? The taxation of EAPs in the U.
S. is an area where there's alarmingly little guidance, and the wide variety of benefits and program structures makes it a difficult area to address. 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. However, this approach is incompatible with the dissociation of EAP from health benefits. 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. 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. 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. To make sure you're organized year-round, it's important to define what's taxable and what's not taxable when it comes to employee assistance programs. 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. 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. To sum up, employee assistance programs (EAPs) are generally fully deductible for tax purposes. This includes the expenses you pay to set up and manage the program and the contributions you make to employee accounts.
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. 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. 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. In conclusion, employee assistance programs are not taxable benefits as long as they are structured properly according to IRS regulations.
Employers should work closely with their EAP providers in order to determine how return on investment will be measured in advance in order to maximize their effectiveness.