IRS considers taxing work perks like food, gym memberships

close

Video

IRS considers taxing work perks like food, gym memberships

Claudia Cowan reports from Mountain View, California

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.

The Wall Street Journal first reported that the agency is considering whether the freebies like food, shuttles, haircuts and more are really fringe benefits on which workers should be taxed. Some tax experts see the perks as skirting the edges of the law, and warn the companies may be violating it -- but also think it would be a very aggressive move for the already-busy IRS to pursue this when they have much more on their plate.

Silicon Valley-based Clari, which has several dozen staffers developing cloud technology for smart phones, is one such company that offers free food -- to workers who rarely leave their desks.

CEO and co-founder Andy Byrne argues that providing good, healthy food is a necessity, not a luxury, and that everyone benefits.

"They win [because] they're happier, our customers win [because] they get a higher quality product and then our shareholders win because they see our momentum in the market. For a small company like Clari, the idea of taxing the perks would have a devastating effect, not only for the employers who would have to cancel the perk, but also for the workers who would have lower productivity," he said.

IRS officials declined to comment for this article.

According to Gamage, these perks have become a necessity in the workplace.

"Tech is a really competitive world at the high end, in terms of employers recruiting the top talent, and employers have responded; not just by paying high salaries, but by providing all sorts of perks," he said.

Even if the IRS does crack down on this perk, the high-tech lunch isn't likely to completely disappear. 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.