Remember those old miner towns? They were company towns where all residents worked for the mine owner. Most towns didn’t even have money. They had tokens. The workers received tokens that they spent at the company general store or the company diner. The workers even lived in company housing. Even if they weren’t paid in cash and paid rent in cash, doesn’t mean that the company provided housing tax-free. There are three tests for you not to pay income tax on company-provided lodging. So, the next time you negotiate for a promotion or a new job, remember these three conditions to get that employer-provided lodging tax-free.
Lodging Must Be for the Convenience of the Employer
First, the house, apartment, or RV, is for the employer’s convenience. As an employee, you would have to be available to the boss 24 hours a day, 7 days a week, or as long as your contract of employment states. The employer must have a business reason for why you must be close at hand. This could be because you must be on call, in person, at random hours throughout the day for a task that only you could do or if you are in a remote location where there is no other viable housing. Those old mining towns would be days away from civilization. You could not commute on the train from work to the suburbs.
The Employee must Take the Lodging as a Condition of Employment
Second, for you to have the job, you must take the employer-provided lodging. You cannot choose between the housing provided by your employer and a nice loft downtown. For the housing to be tax-free, that lodging must be your only option, and you must take it.
The Lodging Must Be on the Business Premises of the Employer
Finally, the housing must be on the business premises. This does not mean that the company owns the house or it’s sitting on company land. It means that the lodging must be in the area where you will be working. This condition is the one that often fails for tax-free exclusion. If your company provides you with an apartment 10 miles away, and you must commute to the office daily, then that apartment is not on the business premises. If you work in a remote area and the company provides lodging 5 miles away for safety concerns, then the lodging would qualify for the exclusion.
So, the tax-free company apartment might not be as glamorous as you first thought it was. You do not get to choose the apartment. You are going to be on call 24/7. You must live super close to work. Generally, it would be better to take a job with higher pay and find your own place to live. If you like the idea of short commutes, not worrying about resale value, and not having too much downtime, then living in tax-free company housing is the life for you. If you cannot find a mining town to work at, try teaching at college universities, working on military installations, or conducting tests at remote research facilities.
To learn more, please contact Abacus CPAs in Springfield, MO at 417-823-7171 or visit www.abacuscpas.com. Better Guidance. Smarter Decisions.
Sam Shafer, CPA