NONTAXABILITY OF WORKING CONDITION FRINGE BENEFITS IN LIGHT OF THE SUSPENSION OF MISCELLANEOUS ITEMIZED DEDUCTIONS
By On November 7, 2019, John Hodnette posted an article on the Tax Section’s blog regarding employee educational fringe benefits. As noted in the article, Section 132(a)(3) provides an exclusion from gross income for working condition fringes. A working condition fringe is any property or service provided to an employee to the extent, if the employee paid for such property or service, the payment would be allowed as a deduction under Section 162 or 167. The 2017 tax act, however, eliminates individuals’ miscellaneous itemized deductions through 2025, including an employee’s expenses related to his or her job. That raises the issue of whether working condition fringe benefits remain nontaxable given an employee cannot deduct employment related expenses.
It seems clear Congress did not intend to make working condition fringe benefits taxable. In other cases in which Congress eliminated a nontaxable benefit, it did so directly, including moving expenses in Section 132(g)(2) and bicycle commuting benefits in Section 132(f). Also, Section 132 only requires a payment be allowable as a deduction under Section 162 without mentioning Section 67. Reg. § 1.132-5(a)(1)(vi) states the limitation of Section 67 is disregarded in determining the amount of a working condition fringe. IRS publications, including Publication 15-B, continue to describe working condition fringe benefits as nontaxable. Therefore, notwithstanding the suspension of employees’ ability to deduct employee expenses, working condition fringe benefits should continue to be nontaxable.
Herman Spence III is an attorney with Robinson Bradshaw in Charlotte.