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Comment by rswail | Hacker News Reader

In Australia, we have "Fringe Benefits Tax" which applies to that sort of thing.

Basically anything that is considered a non-cash benefit is FBT tax owed by the employer. The tax is at the current maximum marginal income tax rate (47%) on a "grossed up" value of the benefit (currently 2.08).

So $1000 of benefit is grossed up to $2080, then taxed at 47% so FBT of $977.60.

Employer can deduct cost of the benefit ($1000) and the FBT ($977.60) from the company's income as an expense. I've left out the complications of GST (VAT) in the example.

There are a bunch of exemptions and stuff (eg for Xmas/end-of-year parties etc) as well as allowable travel expenditure for work etc.

Basically designed to make the fringe benefit not worth giving to employees by employers so that they pay them the cash instead as income.

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If anyone is wondering where 2.08 comes from like me. First we consider the case with no GST, where the gross-up multiplier is x1.8868 ($1887). This is the pre-tax earnings at 47% required to get a post-tax benefit of $1000. i.e. $1887 x (1-47%) = $1000. With some algebra and setting the top marginal tax rate to R, and the Gross-up to G: G=1/(1-R). The idea is the Government gets its cut either way, there is no tax benefit (for employees in the highest bracket, and actually a net loss for employees not in that bracket).

If the employer can claim back GST (currently 10%) on the original purchase, the formula for G becomes G=1/(1-R)+(1/11)/R. To account for the extra 10%/110% that the employer can claim back.

America never did that because it would disrupt the careful allocation of health insurance to people with good jobs.

And if there's one thing the tax code can't have, it's exceptions!

Fringe benefits not specifically excepted are also taxable wage income in the United States, but I don't think employers are forced to gross them up at the highest marginal tax rate or are otherwise discouraged from giving them out in lieu of cash.

The USA's income tax agency, the Internal Revenue Service or IRS, has a whole booklet to help employers figure out how to withhold taxes for fringe benefits:

https://irs.gov/pub15b - Publication 15-B, Employer's Tax Guide to Fringe Benefits

It discusses the de minimis exception mentioned in the originally linked page, as well as exceptions for some meals - important if your employer gives you free or discounted cafeteria lunch or restaurant lunch discount coupons.

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