9 Tax Free Employee Benefits

This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.

Advertiser Disclosure ▾

This page contains affiliate links from which we receive a compensation. Like many publications Wise Bread is supported by affiliate commission from partner companies whose products appear on our site. This may influence which products we write about and the location and order in which products appear. We aren't able to cover every product in the marketplace.

Wise Bread Picks

• Travel Rewards Credit Cards
• Cash Back Credit Cards
• 0% Balance Transfer Credit Cards

There exists a constant power struggle between employers (wanting the best bang for their employee-related expenditures) and employees (wanting the best remuneration possible for their blood, sweat and tears). And in lean economic times as these, the gravity of this push-pull battle between employees and employers is multiplied.

If this trend continues, we will have more jaded employees and less loyal employers. But all is not lost. There are many benefits employers can provide to rekindle employee morale, ensure loyalty, and increase productivity. And do it without increasing the employee's tax burden like a straight salary increase would.

Most employee-related expenditures are tax-deductible to the employer anyway, so where the tax-efficiency of these perks comes in is more on the employee side. Often for a relatively small expenditure on the employer’s part, the employee can receive something that is far more valuable given the tax-efficiency and sometimes even the status increase.

Here are a few tax-efficient perks your employees will love:

1. Education

When I was an employee, one of the first things I negotiated was how many courses they would pay for each year. It was win-win for everybody: I increased my industry knowledge on my own time, and my employer got a motivated – and increasingly well-educated – employee who didn’t actually have to pay out of pocket for the gift of higher education.

Employer Benefits: In addition to the tax-deductibility, you will also have increased employee productivity and applied knowledge.

Employee Benefits: They get a free education, which can be a tax-free benefit.

2. Healthcare 

If you have a health insurance program, you could consider beefing up the program for worthy employees by lowering their deductibles, enhancing their benefits, or paying for a larger portion of the coverage. If you don’t offer health insurance, it could be something to consider.

Employer Benefits: Healthy employees are away from work less. Also, beefing up your healthcare program might be something you can reap the benefits for yourself.

Employee Benefits: Good healthcare is a valuable asset, especially in the United States where most people get health insurance from their employer.

3. Technology Toys

Blackberries, cell phones, laptops, service plans, and various technological knick-knacks can increase employee productivity, and using some of these gadgets is just plain fun. As long as the employer owns and pays for the item and associated plans fully, the employee should see a taxable benefit (even if they make private calls).

Employer Benefits: Enhanced employee productivity and increased morale for being granted a gadget.

Employee Benefits: They now have toys that enhance their ability to do the job, but which also entail some personal perks.

4. Company Car/Car Allowance

Providing a company car or car allowance is tricky business, as it can be a taxable event to the employee if it is not structured a certain way. But generally speaking, if the company owns the vehicle and pays for ongoing expenses like gas with a company credit or charge card (instead of structuring it as a reimbursement program), this can be a beneficial perk for all.

Employer Benefits: Certain employees will benefit greatly from the use of a car, so a jump in productivity is possible, and you look super generous. 

Employee Benefits: Having use of the company car is considered to be one of the most enviable employee perks. Assuming it is structured as a tax-free benefit, it will save the employee loads of after-tax expenditures on the service and upkeep of their own car too.

5. Better Pension/Retirement Account Benefits

This is a fabulous incentive for employees to save money for their future. If you already have a pension/retirement savings program in place, consider increasing the employer contributions, or starting/increasing a matching contributions program.

Employer Benefits: It is an added incentive for employees to stay with the company, rather than jumping ship just based on salary. Additionally, there is something to be said for helping an employee secure their financial future. 

Employee Benefits: Any matching program is like getting free money, even if they can’t spend it right away. And payroll deductions are one of the easiest ways to save money without feeling the pinch.

6. Parking

In busy urban office locations, paying for parking can be an expensive proposition. And although I’d like to encourage people to find alternate ways of getting to work (especially if they don’t already carpool), I realize I’m fighting an uphill battle fraught with impracticality. So provide a benefit and pay for that parking spot!

Employer Benefits: As a cost of doing business, these parking spots don’t even need to be linked to the recipient employee on the books. It also makes the employee feel special (especially if you have a placard with their name on the spot).

Employee Benefits: First of all, it’s free parking (which can amount to savings of hundreds of dollars a month). Secondly, imagine the lack of stress they will feel if they don’t have to search and fight for a parking spot every time they go to work.

7. Employee Bus/Public Transportation Subsidy

Subsidizing or providing public transportation passes, or even putting a private bus on the road to collect and drop off employees each day is a great way to reduce the number of cars on the road and provide a tangible benefit.

Employer Benefits: Your employees will have no excuse for being late, especially if you put that bus on the road yourself! Otherwise, subsidizing public transportation costs encourages employees to leave their cars at home, cutting greenhouse emissions and reducing the number of parking spaces you need to provide!

Employee Benefits: Not having to pay for commute can be a hefty savings, depending on the city they live in.

8. Bicycle Loans

This is a hot trend in the UK: employers are giving (or rather, loaning) bicycles to employees to get to and from work.

Employer Benefits: This (like the above option) reduces negative environmental consumption, and gets employees exercising more – a proven productivity-enhancer.

Employee Benefits: As a free way to get to work, it is also a great workout, and reduces negative environmental impacts.

9. Home Office

For workplaces that encourage flex hours and telecommuting, you can pay for what is required to outfit your employee for remote work. We have already touched upon the technological toys; in addition to that would be the provision of ergonomic office furniture, as well as coverage of a proportionate share of the household expenses like heating and insurance.

Employer Benefits: Telecommuting and flex hours can increase employee productivity. And if you don’t need to keep a dedicated office space free for them, you can save money by leasing a smaller office space.

Employee Benefits: They now have the ability to work flex hours with all the equipment at home to do a decent job. Having additional household expenses subsidized is also a great reduction of after-tax expenditures.