Summary: The Internal Revenue Service (IRS) released Fact Sheet 2024-13 on April 16, 2024, containing FAQs clarifying the federal tax treatment of employer-provided work-life referral (WLR) programs.
These FAQs generally state that WLR programs qualify as a de minimis fringe benefit for tax purposes, and are excluded from an employee’s gross income and exempt from employment taxes.
Read on for more information.
Work-Life Referral (WLR) Programs
These FAQs describe work-life referral (WLR) programs as an employer-funded fringe benefit that provides informational and referral consultations to eligible employees. WLR programs help employees to identify and engage with life-management resources for solutions to a personal, work, or family challenge, particularly providing caregiving logistical benefits.
WLR services are often incorporated into an employee assistance program (EAP). However, these FAQs do not address the direct or indirect payment for the life-management resources or other services offered through an EAP or that may be bundled with a WLR program.
The FAQs provide the following examples of WLR services providing employees with guidance, support, information, and referrals relating to:
- identifying appropriate education, care, and medical service providers,
- choosing a child or dependent care program,
- navigating eligibility for government benefits, including Veterans Administration benefits,
- evaluating and using paid leave programs offered through an employer or a state or locality,
- locating home services professionals who specialize in adapting a home for a family member with special care needs,
- navigating the medical system, including private insurance and public programs, and utilizing available medical travel benefits, and
- connecting the employee with local retirement and financial planning professionals.
Furthermore, the FAQs include the following notable considerations with respect to WLR programs:
- They are used infrequently by employees and only when an employee faces one of the challenges the programs are designed to address, even though they are generally available to most of an employer’s employee population.
- They often rely on third-party providers that charge the employer a per-eligible-employee monthly fee, regardless of how many employees actually utilize the WLR services.
- Some WLR programs provide employees with access to a set number of consultations per year covering a variety of life-management issues.
- Employers are not required to establish systems or practices for handling sensitive or protected information under WLR programs since communication between the employee and the WLR service provider is confidential and not disclosed to the employer.
De Minimis Fringe Benefits
The FAQs provide a high-level overview of the de minimis fringe benefit rules under Internal Code Revenue (IRC) Section 132.
Specifically, IRC Section 132(a)(4) provides that gross income does not include any fringe benefit that qualifies as a de minimis fringe. IRC Section 132(e) defines a de minimis fringe as “any property or service the value of which is (after taking into account the frequency with which similar fringes are provided by the employer to the employer's employees) so small as to make accounting for it unreasonable or administratively impracticable.”
This definition of de minimis fringe takes into account the frequency with which the benefit is provided, which can vary on an employee-by-employee basis. However, if an employer can demonstrate it would be administratively difficult to monitor the frequency with which individual employees take advantage of a benefit, it may instead reference the frequency with which the employer provides the fringe benefit to the workforce as a whole (“employer-measured frequency” rule).[1] This “employer-measured frequency” rule underscores the IRS’s stance here deeming employer-provided WLR programs as a de minimis fringe benefit since, as noted above, they are used infrequently by employees but generally offered to the entire employee population.
Practical Tip: These FAQs also remind employers that certain items, such as cash and cash equivalent fringes (e.g., gift cards), cannot be de minimis fringes (except for special rules that apply to occasional meal money and local transportation fare).
FAQs Guidance
These FAQs clarify that the use of employer-provided WLR programs qualifies as a de minimis fringe benefit that is:
- excluded from an employee’s gross income, and
- not subject to employment taxes, including for purposes of the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), and federal income tax withholding.[2]
Employer Impact
WLR programs continue to be a popular employer-provided benefit for employees to manage work-life balance, personal challenges, and caregiving needs. This is especially true in the wake of the pandemic, which highlighted the critical need for these programs. These FAQs provide welcome guidance for employers with respect to the tax treatment of WLR programs and present a ripe opportunity for employers to reinforce their communication efforts around promoting these programs to increase employee awareness and participation.
While these FAQs are simply informal guidance and may not be used or cited as precedent, they do serve as instructive guidance on the IRS’s position regarding tax treatment of WLR programs. Furthermore, the IRS confirms in these FAQs that a taxpayer who reasonably relies on them in good faith will not be subject to a penalty under a reasonable cause standard.
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[1] IRC Section 1.132-6(b)(2).
[2] In accordance applicable IRC exclusions under IRC Sections 3121(a)(20), 3306(b)(16), and 3401(a)(19).
