IRS considers taxing ‘work perks’

IRS considers taxing ‘work perks’

By John Haywardon Wed, 16 Apr 2014

I’m sure many Americans spent Tax Day thinking, “You know what?  We’re just not taxed enough, in enough different ways, and there isn’t nearly enough paperwork to fill out.  Isn’t there some way we could be required to fill out another dozen tax forms every year, providing countless new opportunities for us to make small mistakes that could get us in big trouble?”

Why, yes, there is!  According to Fox News, the IRS is thinking about taxing the perks many employees receive at work, treating them as a form of income.  (Yes, the IRS gets to decide what taxes Americans pay.  It’s in one of the penumbras of the Constitution, I think.)

In competitive job markets like Silicon Valley, companies are doing everything they can to entice the best and brightest — offering freebies that have become the stuff of legend.

Employee perks like free food at lavish cafeterias, laundry and even yoga are not unheard of.

But the taxman could soon crack down.

The IRS reportedly is looking at these perks and seeing if these companies need to start paying up for the free stuff they offer employees.

David Gamage, a tax expert and professor at the University of California, Berkeley, said it would really boil down to who benefits from these perks.

“To what extent is this intended as a perk, a form of compensation, for the benefit of the employee, or to what extent is this just another way the employer gets the employee to work harder and longer and do things for the benefit of the employer?” he said.

If it’s the latter, then it’s harder for the IRS to tax it.

Sounds like the kind of endless argument that would consume millions of hours of our time, and I for one can think of no better use for the energies of American business than filling out stacks of paperwork to determine whether each gift of free bagels and coffee from the boss qualifies as taxable income, or non-taxable productivity fuel.  Also, I was just thinking that America doesn’t have nearly enough tax lawyers and compliance bureaucrats.  The Work Perk tax regime would fix that problem in a jiffy!

There are already some tax rules governing fringe benefits, so the new IRS initiative sounds more like a crackdown than a completely new set of rules.  Crackdowns require enforcers, and prosecutions.  Can’t wait for the first CEO to spend a month in court arguing that his Taco Tuesday program shouldn’t have been taxable, or that he just plain forgot to fill out the necessary forms.  Sounds like it could be an exciting new weapon for the Republic of Paperwork to deploy against the private sector it despises.  I’m sure it will all be administered impartially, without a smidgen of corruption.

“Even if the IRS does crack down on this perk, the high-tech lunch isn’t likely to completely disappear,” the Fox report concludes.  ”Legal experts suspect most companies will probably just report it as ‘taxable income’ to employees and then pay them more in salary to cover the cost.”

That’s an awfully rosy prediction.  It’s more likely that workplace perks will simply disappear, no matter the cost to productivity.  They could become services the employees have to pay for individually, and I wouldn’t bet on many businesses outside of the highly competitive tech sector paying them more to compensate for the loss of free fringe benefits.  The power to tax is the power to destroy.