To motivate or reward your employees, consider giving them a tax-free benefit. The cost of certain benefits can be nontaxable to employees and tax-deductible to your business. Offering as many tax-free benefits as your business can afford might also help you hire and retain the workers you need.
Insurance
Start with the traditional benefit of health insurance. Consider adding term-life insurance coverage, which is tax-free to employees up to $50,000 of coverage, and long-term disability insurance.
FSAs
Another option is to provide flexible spending accounts (FSAs), which allow employees to set aside pre-tax dollars to pay for unreimbursed medical expenses or child care expenses.
Retirement plan
Even small businesses should consider offering some form of retirement plan. Some plans require employer contributions, but not all of them do. Choose the plan that fits your company. It's important to provide a vehicle for employees that both reduces their taxable income and builds tax-deferred savings.
Other benefits
A number of other fringe benefits offer tax advantages or are tax-free to employees. For example, you can now offer your employees a salary reduction option to pay for transportation benefits such as parking or bus passes, within certain limits. Employees benefit from lower taxable income and lower payroll taxes. Other fringes, such as education assistance, job training, dependent care assistance, or adoption assistance, can be tax-free to employees if offered as part of a properly structured program.
Most of these benefits must be provided equally among all your employees. If you discriminate in favor of certain key or highly compensated employees, the benefits could be taxable to them.
For a review of the fringe benefits you might want to offer your employees, give us a call.