Notes from the Payroll Prof
by Roger A. Smith, CPP, Payroll Management Consultant

Athletic Club Use Taxable?

I recently received an inquiry from a payroll professional regarding the taxability of use of an athletic club. Here’s an excerpt from her inquiry:

“My company has several locations throughout the states. In one of our locations employees are allowed to use a local fitness facility at no cost to the employee. Company employees visiting the area are also welcome to use the facility. The employees just show their company ID to use the facility. The company pays $5.00 per visit per employee for use of the fitness facility to the Facility owner(s).

Could this non-cash benefit be considered de minimis because of all the bookkeeping involved and the process of grossing-up each employee? Or could it fall under [I.R.C. Sec 132, 3401(a)(19)], certain courtesies, facilities and privileges that an employer offers its employees (and their dependents) are excluded from federal income and employment tax?”

As I’m sure all you CPP’s are aware, company-provided use of off-premises athletic clubs is taxable income at the Federal level (and in most states”). The IRS gives specific guidance on this issue:

“You can exclude the value of an employee's use of an on-premises gym or other athletic facility you operate from an employee's wages if substantially all use of the facility during the calendar year is by your employees, their spouses, and their dependent children. For this purpose, an employee's dependent child is a child or stepchild who is the employee's dependent or who, if both parents are deceased, has not attained the age of 25.

On-premises facility. The athletic facility must be located on premises you own or lease. It does not have to be located on your business premises. However, the exclusion does not apply to an athletic facility for residential use, such as athletic facilities that are part of a resort.

Employee. For this exclusion, treat the following individuals as employees.

• A current employee.
• A former employee who retired or left on disability.
• A widow or widower of an individual who died while an employee.
• A widow or widower of a former employee who retired or left on disability.
• A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control.
• A partner who performs services for a partnership..”

Furthermore, since the employer is tracking the use of, and paying for each visit, it could not qualify as a de minimis fringe which is defined as “a product or service [for which] the cost of it is so small that it would be unreasonable for the employer to account for it.”

The IRS provides specific guidance on many fringe benefit situations, and a quick visit to irs.gov should be able to answer most questions of this type. Use the “Advanced Search” feature to quickly get you to the right reference document.

Payroll Humor
Moving on to payroll humor, I am in the process of collecting humorous stories from payroll departments across the country (and a few from around the world). These are typically similar to a Reader’s Digest story from their “@ Work” feature, but specifically related to payroll. Do you have a humorous story that happened in your payroll department? If so, I’d love to hear from you. Please email me at the address below. I’ll publish some of the best stories in a future issue. Thanks!

As always, if you have any questions or comments, my email address is Roger.Smith@PayrollProf.com and my profile is available on LinkedIn.com.