April 18, 2013

Employee Compensation: Free Housing and Food

Question:

A teacher in a foreign country was provided with "free" housing and food. Does this teacher need to report this as income for tax purposes?

Answer:

Publication 525 says the following:

"You do not include in your income the value of meals and lodging provided to you and your family by your employer at no charge if the following conditions are met.

The meals are:
    1. Furnished on the business premises of your employer, and
    2. Furnished for the convenience of your employer.
The lodging is:
    1. Furnished on the business premises of your employer,
    2. Furnished for the convenience of your employer, and

    3. A condition of your employment. (You must accept it in order to be able to properly perform your duties.)"
Publication 15 defines convenience of the employer as: "'For the convenience of the employer' means you have a substantial business reason for providing the meals and lodging other than to provide additional compensation to the employee. For example, meals you provide at the place of work so that an employee is available for emergencies during his or her lunch period are generally considered to be for your convenience.

"However, whether meals or lodging are provided for the convenience of the employer depends on all of the facts and circumstances. A written statement that the meals or lodging are for your convenience is not sufficient."

If these conditions are not met, then the value of the food and housing are considered taxable compensation and must be reported as such.

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