In-kind benefits are non-cash benefits of monetary value that employers provide their workforce as part of their compensation strategy to attract talent and boost employee retention.
In-kind benefits are also referred to as benefits in kind (BIK), fringe benefits, perks, or non-mandatory benefits.
For some employees, these benefits are bonus incentives piled on top of an attractive salary. For other low-income employees, in-kind benefits provide essential services like healthcare and childcare that they couldn’t afford with taxable monetary income alone.
Read more: learn how to calculate employee benefits costs.
What are the most valuable in-kind benefits?
The following common benefits are high on employees’ priority lists:
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Relocation expenses
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Housing subsidies
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Food vouchers and food stamps
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Life insurance
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Pension contributions
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Childcare
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Non-business travel and entertainment expenses
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Use of a company car
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Access to a coworking space
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Employee loans or student loan repayments
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Travel expenses
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Health and wellbeing memberships
Are in-kind benefits taxable?
There are taxable and non-taxable in-kind benefits as determined by the regulations of your employees’ home country.
The most common taxable in-kind benefits include reimbursement of tuition or education expenses and mileage expenses. Also, benefits such as a company car or mobile phone may be subject to taxation if used for private purposes or if they surpass the maximum amounts. Such perks are valued at market value, and the employee pays tax on the taxable value of the benefit.
On the other hand, many fringe benefits are non-taxable. For instance, in the US tax policy, accommodations provided explicitly to workers to perform their job are often excluded from tax withdrawal. In addition, benefits considered de minimis, or of an insignificant amount, such as a small gift card given to an employee as a birthday present, are not subject to taxation. Awards for achievements are also tax-free.
Are in-kind benefits tax deductible?
Sometimes, employers can claim a cost deduction for benefits provided to employees. For instance, in the US, paid vacation is a deductible benefit.
However, a benefit’s taxability and the expense’s deductibility are different. For example, suppose you provide a non-taxable benefit to an employee. In that case, you can still deduct the costs of providing the benefit.
In the case of a taxable benefit, such as a company car, you must include the value of this fringe benefit in the employee’s wage as part of their compensation. You can’t deduct the value of this perk as a wage expense. Instead, you deduct the cost of providing it.
Should you report in-kind benefits?
Labor laws worldwide require employers to report in-kind benefits included in a compensation package. Therefore, employees and employers must familiarize themselves with various forms of reporting in-kind benefits.
In the US, employers must include all taxable BIK on an employee’s W-2. In the UK, employers use a P11D form to declare benefits to HMRC.
Employers must report independent contractor bonuses and benefits on Form 1099-NEC.
Self-employed individuals may purchase benefits in kind for business purposes and must declare them on a tax return.
