Publication 15b |
2000 Tax Year |
No-Additional-Cost Services
This exclusion applies to a service you provide to an employee that
does not cause you to incur any substantial additional costs. The
service must be offered to customers in the ordinary course of the
line of business in which the employee performs substantial services.
Generally, no-additional-cost services are excess capacity
services, such as airline, bus, or train tickets; hotel rooms; or
telephone services provided free or at a reduced price to employees
working in those lines of business.
Substantial additional costs.
To determine whether you incur substantial additional costs to
provide a service to an employee, count any lost revenue as a cost. Do
not reduce the costs you incur by any amount the employee pays for the
service. You are considered to incur substantial additional costs if
you or your employees spend a substantial amount of time in providing
the service, even if the time spent would otherwise be "idle" or
if the services are provided outside normal business hours.
Reciprocal agreements.
A no-additional-cost service provided to your employee by an
unrelated employer may qualify as a no-additional-cost service if all
the following tests apply.
- The service is the same type of service generally provided
to customers in both the line of business in which the employee works
and the line of business in which the service is provided.
- You and the employer providing the service have a written
reciprocal agreement under which a group of employees of each
employer, all of whom perform substantial services in the same line of
business, may receive no-additional-cost services from the other
employer.
- Neither you nor the other employer incurs any substantial
additional cost either in providing the service or because of the
written agreement.
Employee.
For this exclusion, treat the following Individuals as employees.
- A current employee.
- A former employee who retired or left on disability.
- A widow or widower of an individual who died while an
employee.
- A widow or widower of a former employee who retired or left
on disability.
- A leased employee who has provided services to you on a
substantially full-time basis for at least a year if the services are
performed under your primary direction or control.
- A partner who performs services for a partnership.
Treat services you provide to the spouse or dependent child of an
employee as provided to the employee. For this fringe benefit,
"dependent child" means any son, stepson, daughter, or
stepdaughter who is a dependent of the employee, or both of whose
parents have died and who has not reached age 25. Treat a child of
divorced parents as a dependent of both parents.
Treat any use of air transportation by the parent of an employee as
use by the employee. This rule does not apply to use by the parent of
a person considered an employee because of item (3) above.
Exclusion from wages.
You can generally exclude the value of a no-additional-cost service
you provide to an employee from the employee's wages.
Exception for highly compensated employees.
You cannot exclude from the wages of a highly compensated employee
the value of a no-additional-cost service that is not available on the
same terms to one of the following groups.
- All your employees, or
- A group of employees defined under a reasonable
classification you set up that does not favor highly compensated
employees.
For this exclusion, a highly compensated employee for 2001 is an
employee who meets either of the following tests.
- The employee was a 5% owner at any time during the year or
the preceding year.
- The employee received more than $85,000 in pay for the
preceding year.
You can choose to ignore test (2) if the employee was not also
in the top 20% of employees when ranked by pay for the preceding year.
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