On April 16, 2024, the IRS issued guidance in the form of Frequently Asked Questions on the tax treatment of work-life referral services (IR 2024-110, Fact Sheet 2024-13). Generally, work-life referral services are excluded from income and are exempt from employment taxes.
What is Work-Life Referral Services?
Work-Life referral services are employer funded benefits to assist employees in finding resources and support for personal, work, or family challenges through informational and referral consultations. Typically, an employer will establish an employer-funded fringe benefit plan, referred to as a work-life referral (WLR) program which provides these services.
WLR programs work with subject-matter specialists who are trained in helping employees navigate life events including child-care, health care, legal and financial issues and benefits provided by employers or governments. These information and referral services include:
- Identifying appropriate education, care, and medical providers
- Choosing a child or dependent care program,
- Evaluating and using paid leave programs offered through the government or the employer,
- Locating home service professionals for those family members with special needs,
- Navigating the medical system including insurance programs and using medical travel benefits, and
- Referring employees to local retirement and financial planning professionals.
The IRS states in the FAQ that even though they are offered to a significant portion of an employer’s employees, they are often used infrequently by employees and only when an employee faces one of the life events mentioned above. WLR programs often rely on third party providers that charge the employer a per-eligible-employee fee regardless of the number of actual employees that participate. This also allows a layer of anonymity so that employees who may be dealing with sensitive issues affecting themselves or their families are assured that their situation remains confidential and not disclosed to the employer. For the employer, they do not need to establish systems for handling sensitive or protective information.
Tax Treatment of WLR Services
The IRS takes the position that WLR services are treated as de minimus fringe benefits and are therefore excluded from income and are exempt from employment taxes (FICA, FUTA and income tax withholding). A de minimus fringe benefit is generally considered a small and infrequent perk that is impractical to account for due to its minimal value and rare occurrence. Employers should review their WLR programs frequently to determine how this definition applies to their program. The guidance also notes these FAQs have not been published in the Internal Revenue Bulletin, therefore the IRS will not rely on them to resolve a case. If an FAQ provides an inaccurate statement of the law, the law will control.
If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
