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In-Kind Benefits: Definition, Examples, and Tax Implications for Businesses

By November 10, 2022No Comments
A man, woman, and child frolic on the beach. Each wears a white shirt and has dark brown hair. The sun is shining and there are mountains on the horizon.

In-kind benefits are non-cash perks that companies offer to their workforce to increase job satisfaction and improve work-life balance. Almost anything of value offered to employees beyond wages or a salary can qualify as “in kind.” Some benefits are tax-deductible for employers, while others aren’t.

Read along as we explore exactly what in-kind benefits are, what tax implications they have, which types are most popular, and what pros and cons employers should know about.

Table of Contents

What Are In-Kind Benefits?

Benefits in kind are: Extra perks on top of salary, non-cash (with monetary value), and good for employee satisfaction.

In-kind benefits are non-monetary benefits that organizations offer in addition to salaries or wages. These are also called benefits in kind, perks, or fringe benefits. Benefits in kind are non-cash, though they do hold monetary value. The variety of benefits considered “fringe” is huge—almost any perk you can conceive of is a benefit in kind.

Some common examples of in-kind benefits include:

  • Private health insurance
  • Travel and entertainment expenses
  • Pension contributions
  • Company cars
  • Remote work stipends

When deciding which perks to offer, consider what matters most to your workforce. If your workforce commutes to an on-site location, employees will likely value transit- and parking-related benefits. On the other hand, an entirely remote workforce will gain more from benefits like home office upgrade stipends or internet reimbursements.

Tax Policies for Benefits In Kind

Employers can deduct the cost of providing benefits (like depreciation on a company car) but not the non-cash value of benefits (like the payout of a life insurance policy).

Perks are not created equal. Depending on the country you conduct business in, certain benefits in kind face tax liability, while others don’t. In most cases, benefits that exist for personal use or pose a personal gain for employees are taxable. Even if a benefit isn’t taxable for an employee, your business might be able to write off the cost of providing the benefit.

Let’s explore which perks are taxable for your employees, which are tax-deductible for your business, and how you can report benefits-related expenses.

Taxable Benefits

Most non-cash employee perks are taxable unless specifically noted in a country’s tax code. Some of the most common taxable benefits are:

  • Discretionary bonuses
  • Gym memberships
  • Non-business travel and entertainment
  • Non-business meals and housing
  • Relocation expenses

Common excluded, nontaxable benefits in most countries include:

  • Health insurance plans
  • Qualified retirement contributions
  • Group-term life insurance

Add the value of any taxable non-cash perks (such as a company car or a wardrobe allowance) to the employee’s taxable wages, and don’t deduct that value as a wage expense.

Tax-Deductible Benefits

Even if your workforce doesn't have to pay taxes on certain benefits, you can still deduct the cost of providing those benefits.

Benefits in kind create new opportunities for business tax deductions. Although these perks aren’t wage expenses you can deduct, you are able to deduct the costs associated with providing the perks in most cases.

Some common in-kind benefit deductions for business owners are:

  • Administrative costs to provide employees with the benefit
  • Depreciation from employee perks like company cars
  • Interest paid on any perks financed by the company

Most expenses that employers incur related to nontaxable employee benefits are 100% tax-deductible.

How To Report In-Kind Benefits

Tax liability differs for taxable fringe benefits provided to employees and non-employees like partners or independent contractors.

  • Employees. Benefits in kind are usually subject to employment taxes and should be reported accordingly.
  • Non-employees. Benefits in kind aren’t subject to employment taxes, but should be reported with appropriate forms. Consult your local tax agency for up-to-date information.

Regardless of employment status, employers should include the value of any taxable fringe benefits in the recipient’s pay. You cannot deduct wage expenses for those perks, but you can deduct the cost of providing the perks as business expenses on your company’s tax return.

Types of in-kind benefits

According to research from The Conference Board, 86% of companies have formal policies defining the in-kind benefits they offer their workforce. These perks vary greatly based on location, industry, and company size.

Some of the most popular benefits in kind according to research from the Society for Human Resource Management (SHRM) are:

  1. Retirement benefits
  2. Health and wellness benefits
  3. Childcare costs
  4. Relocation coverage
  5. Food expenses

These extra benefits are not mandatory. However, companies that provide perks stand to improve job satisfaction and decrease the chances of employees jumping ship.

1. Retirement Benefits

When comparing statistics on employee benefits and their popularity, one number stands out: More than 75% of employees view retirement savings as their most important benefit.

Organizations can offer a variety of retirement options to their workforce, like:

  • Savings accounts
  • Profit sharing plans
  • Stock ownership programs

Retirement benefits create a vested interest in your company for your employees because you’re investing in their future financial security. Some employers offer time-based retirement plans to reward tenured employees, like increasing the percentage match to their retirement account after working a certain number of years.

2. Health and Wellness Benefits

Most global employees live outside of the top countries for health care benefits and may not face the same healthcare costs and levels of access. Medical and wellness benefits in kind are long-term investments in the well-being of your workforce.

Some of the most common medical benefits are:

  • Health, life, and disability insurance
  • Wellness programs, such as a gym membership
  • Mental health resources, like access to counseling

The health and well-being of your workforce are crucial to the longevity and profitability of your business. If private insurance is necessary for employee satisfaction in a country where you employ talent, review your options and discover what benefits you can afford to provide your workforce.

3. Childcare Costs

The prominence of remote work has fundamentally changed how employers handle dependent care fringe benefits, like providing flexible schedules to parents who work from home. However, tax policies around dependent care costs haven’t changed as much.

Popular fringe benefits for dependent care are:

  • Onsite care facilities for children of employees
  • Direct payments to care providers
  • Reimbursements for care expenses

Most dependent care under a certain amount is exempt from income taxes. This means that the employee’s wages do not include the value of the benefit and your business can deduct the cost of providing the benefit to your workforce.

4. Relocation Coverage

Reimbursement for moving expenses was once a nontaxable perk separate from wages. However, some countries now treat relocation expenses as a taxable fringe benefit. This means that costs associated with reimbursement are subject to income tax as employee compensation. You will still be able to deduct the cost of providing this benefit to your workforce.

Relocating talent is costly, and employees who face tax liability for the costs of their move could be disincentivized to move for work. If relocation creates an issue in finding top talent, consider workplace adaptability solutions like switching to a remote work model.

5. Food Expenses

In-office and travel-related expenses for food are a common fringe benefit. In fact, GlobeNewswire predicts that the global market for meal-related employee benefits will grow 50% to $321 billion by 2029.

Meals provided for employees are nontaxable or tax-deductible, depending on tax criteria for your country of business. Generally, meals are nontaxable if they are provided:

  • On the premises
  • For the convenience of the employer

If the above criteria aren’t met, your company likely holds tax liability for the meal. However, you will be able to deduct part or all of the cost of the meal.

Pros and Cons for Employers

Pros and cons of in-kind benefits for employers.

In-kind benefits offer different upsides and drawbacks for employers with distributed workforces. Since employers aren’t required to offer these additional perks, it’s important to consider the pros and cons of benefits in kind to understand whether your business should offer them to your workforce.

Pros

  • Competitive benefits attract and retain top talent.
  • Perks improve employee satisfaction and morale.
  • Benefits reduce the total cost of employment.
  • Plan contributions can be deducted from tax liability.

Cons

  • Benefits carry higher costs with fewer choices for smaller businesses.
  • Administrative overhead costs can balloon.
  • Rising health insurance costs are tough to plan for.
  • Mistakes can lead to compliance issues, costly fines, and lawsuits.

Attracting and retaining stellar talent is no easy feat, and it can get expensive. By offering non-salary benefits, your business stands a better chance of retaining the employees you attracted to your organization.

Discover a Benefits Solution That Fits Your Business

The benefits you offer to your workforce matters. Organizations that extend in-kind and supplemental benefits to their employees are better able to attract and retain top talent than organizations that don’t.

As a global Employer of Record, Velocity Global helps you structure and provide Global Benefits that keeps your workforce happy. Get in touch to learn more about offering compliant and competitive benefits catered to your talent’s location.