Employers are naturally concerned about the Financial Freedom and welfare of their valued employees.
As a result, many employers make available to their employees consulting services ranging from financial planning during the employees’ tenure with the employer to Outplacement Services in the event of a downsizing. Here is a look at the tax treatment of some of the Consulting Services that employers most often provide and how they are treated for tax purposes.
Fees that you, as an employer, pay to professional financial counseling firms to provide your employees Advice on Handling their Personal Financial Affairs, such as advice on:
(3) Real Estate,
(4) Tax Planning,
(5) Tax Return Preparation,
(6) Retirement Benefits, and
(7) Estate Planning are generally included in the employees’ gross income and treated as wages for income tax withholding, FICA tax, and federal unemployment tax purposes.
However, the value of any “Retirement Planning Services” you provide to an employee and his or her spouse is excludable from the employee’s income and wages if you maintain a qualified retirement plan. For purposes of this exclusion, retirement planning services include advice or information on retirement planning, but do not include accounting, legal, tax preparation, and brokerage services. Also for purposes of this exclusion, a qualified retirement plan includes a:
(1) Code Sec. 401(a) qualified plan,
(2) A Code Sec. 403(a) qualified annuity plan,
(3) A governmental plan, a Code Sec. 403(b) Tax Sheltered Annuity Plan,
(4) A Simplified Employee Pension (SEP) plans, and
(5) A so-called SIMPLE Retirement Account.
A Highly Compensated Employee can exclude the value of qualified retirement planning services only if the services are available on substantially the same terms to each member of a group of employees that are normally provided education and information about your qualified retirement plan.
The Value of Outplacement Services you provide to your employees to help them find a new job (such as career counseling, resume assistance, or skills assessment) is generally includible in the employees’ gross income as wages. However, the value of these services is excluded from an employee’s gross income and wages if:
(1) You, the employer, derive a substantial business benefit from providing the services (such as improved employee morale or business image) separate from the benefit you would receive from the mere payment of additional compensation, and
(2) the employee would be able to deduct the cost of the services as employee business expenses if he or she had paid for them himself or herself.
If you receive no additional business benefit from providing the services, or if the services are not provided on the basis of employee need, then the value of the services is included in the employee’s gross income and treated as wages for employment tax purposes. Similarly, if an employee receives the outplacement services in exchange for reduced severance pay (or other taxable compensation), then the amount by which the severance pay (or other taxable compensation) is reduced is included in the employee’s gross income and treated as wages for employment tax purposes.
Please call me at your convenience so that we can discuss the tax treatment of these or any other employer-provided consulting services.
Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.
DON FITCH, CPA
74478 Highway 111 #3
Palm Desert, CA 92260
Toll Free: (877)CPA-Help or (877)272-4357
P.S. My firm is based upon referrals. Please feel free to refer my firm to anyone you know that is looking for a new CPA and/or tax preparer. Thank you in advance.
(Updated 05212021-1 320-370)