Not Everything is Free: Tackling the Taxability of Executive Fringe Benefits and Other Perquisites

The demanding aspect of the U.S. income tax system is that taxable income starts with gross income (in all its forms) unless otherwise excepted. For executives—perquisites can abound. Are they taxable? Free lunch? Not necessarily. Country club membership? Not likely. Fly on the company plane for business then jet off to the islands for personal travel? There you have mixed personal and business travel, but the executive likely has imputed income. Personal travel on a company plane comes at a cost and imputed wages will result. Often, perquisites and other fringe benefits are taxed at fair market value, but for some, a special valuation method applies, reducing the amount treated as additional W-2 wages. When using company-provided aircraft, the special valuation comes in the form of Standard Industry Fare Level (SIFL) rates that are published twice a year and apply for travel in the first or second half of the year, respectively.  This reduces the imputation well-below charter value. The amounts imputed to the employee may even be reported in the proxy if the employer is a publicly traded company and the employee is a named executive officer (and a reporting threshold for all perquisites is met).  

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Related Content

• Tax Key Legal Developments Tracker (Federal)
  Note in this tracker that IRS announced the SIFL cents per-mile rates and terminal charge in effect for air travel during the second half of 2023. Rev. Rul. 2023-19. These rates are used for purposes of complying with the special valuation rule in Treas. Reg. § 1.61-21(g) relating to the valuation of non-commercial flights on employer-provided aircraft.

• CD&A Drafting Checklist
  Remember that, when drafting the CD&A for NEOs, all elements of executive compensation (e.g., salary, annual bonus, short-term incentives, long-term incentives, benefits, perquisites, and termination/severance provisions) should be reported. For perquisites, like personal use of employer-provided aircraft, Item 402 of Regulation S-K requires reporting the total value of all perks and other personal benefits provided to NEOs who receive at least $10,000 worth of such items in a given year, separated out by type.

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