Hello and welcome to another fun and exciting episode of NannyCast. As with all other financial or legal episodes of NannyCast, this episode is only relevant to nannies living and working in the United States of America. If you are a nanny living or working elsewhere, we’ll see you on the next episode. For everyone else, welcome!
Aside from getting cash in our paychecks, we can also be compensated through something called a fringe benefit. Fringe benefits are non-cash things which we earn through our labor that aren’t always subject to income taxes. They exist to bridge the gap when an employer doesn’t have a lot of extra cash but wishes to give us performance bonuses or to make the job more attractive. I’ve received cell phone service that saved me almost a hundred dollars a month, take-home dinners that saved me two hundred dollars a month in my food budget, extra paid time off for travel, airline miles that saved me thousands in plane tickets I didn’t need to buy, museum memberships in my name which means I could use them for adult programming when off the clock, and so much more throughout my career as my employers looked for creative ways to honor my economic value while also not overextending their budget.
The following audio comes from a webinar that was aimed at human resources directors about fringe benefits at the corporate level. But as we discussed in NannyCast episodes 12, 13, and 14 which can all be found over at nannycast dot com, we have to be our own HR departments and thus we are our own human resources managers and surprisingly what is applicable in the corporate world is also applicable in the domestic employee world. So this means that next time your bosses counter your raise request with something a bit smaller than you’d prefer, ask them if they can offer you some fringe benefits to help the money you do earn go further.
In addition, this episode will help you understand if what they are offering you might be taxable on their cash value or if the fringe benefit can be offered tax free. No one wants to be audited and while employers should know (or learn), their mistake can lead to burdensome paperwork for us, too. So knowing allows us to be a double-check against any mistakes.
And without further ado, we begin by meeting our presenters.
(chime)
(audio 1)
We begin with Paige.
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This means that as a rule of thumb, if the IRS doesn’t specifically say that something is not taxed, then its cash value needs to be added to our taxable income when calculating our tax withholding, our tax liability, and the amount of FICA we pay. This means that the total money listed on our W2s that our employers give to us on January 31st might be higher than the actual money we have received in our bank account because we listened to Spotify rather than having $20 in our bank account that month, but it nonetheless is taxable as if we were given $20 into our bank accounts.
The good news is that there are fringe benefits that are excluded from being counted as taxable income under something from the IRS called “section 132”. They don’t end up on our W2s. These are the ones we want and should advocate for. Jeanette will lead us through those fringe benefits.
(audio 3)
So if you work for a family that has a rental mountain house as my colleague Nanny K did, the family can provide you with a few weekends or a week of use of the mountain house as part of the nanny’s compensation package which allows for an amazing vacation without having to shell out a lot of money or pay the income taxes for the lot of money Nanny K wasn’t shelling out.
(audio 4)
So this means that in order not to have to pay income taxes on her mountain house vacation, Nanny K needs to go only during low-demand, low-season times. Which, okay, it is cheaper to travel then anyway so bring it on!
(audio 5)
So if you work for a dentist as my colleague Nanny L did, the dentist can provide reduced-cost dental care to Nanny L as part of her compensation package which saved her hundreds of dollars out of pocket (and the taxes that she didn’t have to pay on hundreds of dollars of income) because Nanny L’s dentist employer provides dental care to customers already. Same for any other service provider employer: doctor, hair stylist, physical therapist, and the list can go on. The maximum tax-free value is, according to Jeanette, 20% of the cost.
(audio 6)
This is the one that allows employers to include professional development funds in our compensation packages without us having to pay income tax on them. It is what allows us to eat at work for free and have them cover our admission to museums and other things we absolutely HAVE to do in order to do our jobs. This is why the IRS reimbursement rate of using our private cars or the providing of a nanny car are tax free. And this is what enables me to have a museum membership. For nannies, these are a lot of the fringe benefits already built in rather than added on top as an extra incentive.
However, if you have a family that requires you to be reachable at all times by phone or to send photos at times you might not have WiFi and thus need a data plan, this is also the exclusion that allows them to cover your phone plan, one that meets your employer’s needs, without you having to pay income tax on that benefit.
(audio 7)
We have already discussed these de minimus benefits in episode 45 on holiday bonuses or holiday gifts. You can find that episode over at nannycast dot com and search for NannyCast 45.
(audio 8)
So this is a big one and she ends with a warning that there are limits to how much money each of these can be worth, so do check the latest IRS guidance if you are going to get one of these fringe benefits, but each of these talks about how we get to work. Our employers can get us monthly transit passes, pay for our parking if we drive in and there is only paid parking available in order to work, and our employers could buy us bicycles and pay for the bicycle maintenance so that we could bicycle commute to our jobs. A colleague of mine, Nanny S, used to care for a very small baby in a downtown highrise whose only parking was in a paid garage and was given the fringe benefit of parking in order to arrive at and do her job. I have bicycle commuted to work and am only now while researching this podcast realizing that I could have asked for maintenance budget for my bicycle, and I had to have tube service on it a few times in service of my commute.
(audio 9)
This is a good one for taking a job out of state and having the new employer sweeten the deal to get you to accept the job. They can pay your moving expenses, saving you a bundle, and it won’t count as taxable income or part of your compensation package. Don’t take jobs that require moving without it! Also, if your employer moves and asks you to come with them to their new location, once again, don’t move without them covering your moving expenses as this is a fringe benefit to you!
(audio 10)
Retirement is far off in the future but our employers can help us create and contribute to a fund or can even start a retirement fund for us and if they do, it is not taxable as income to us so long as it is available to all of their employees. And “all” is an easy threshold to hit when we are the only employee. Don’t leave free future money on the table.
(audio 11)
So at this point, if the answer isn’t that this fringe benefit is excluded from being considered taxable income, you may wish to just have cash in your paycheck so as to purchase that service yourself if it is something you want because you’re going to be paying income tax on the cost of it anyway and maybe you want the money for something else.
If you still want that fringe benefit anyway, even though it is taxable income and not an exclusion, please visit the show notes for this episode over at NannyCast dot com, this being episode fifty, so that you can find the link to the entire talk and learn about how the income tax on the fringe benefit is calculated.
And with that, happy compensation package!
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