IRS says employee work-life referral benefits non-taxable

Work-life referral (WLR) programs provided by some employers can be excluded from employee compensation for income tax purposes and are not subject to payroll taxes because they are de minimis fringe benefits, according to recent IRS guidance. These plans are often included in employee assistance programs (EAPs) and are generally restricted to informational and referral consultations that assist with identifying, contacting and negotiating with life-management resources to solve personal, work or family issues.

WLR programs may be available to a large portion of an employer’s employees, but the IRS said they are intended to be used infrequently in situations where an employee is facing a challenge the program is designed to address. The agency noted §132 provides that gross income does not include any fringe benefit that qualifies as a de minimis fringe, defined as any property or service with a value that is so small as to make accounting for it unreasonable or administratively impracticable.

Additionally, the IRS noted that, for the purposes of the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA), and sections of the tax code addressing federal income tax withholding, the term “wages” does not apply when it is reasonable to believe the employee will be allowed to exclude the benefit under §132.

What are WLR programs?

WLR programs help employees complete paperwork and basic administrative tasks that direct them to the appropriate providers of necessary life-management resources. The programs work with subject matter specialists trained to help employees navigate work-life challenges involving access to and eligibility for government and employer- and government-provided benefits related to child care, elder care and health care. They also assist with legal and financial issues.

More specifically, WLR services offer employees guidance, support, information, and referrals in connection with, for example:

• 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 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 utilizing available medical travel benefits
• Connecting the employee with local retirement and financial planning professionals

The programs often rely on third-party providers that charge employers a monthly fee based on the number of eligible employees, regardless of how many actually utilize their WLR services.