If you need short-term lodging, corporate housing can save you money up front over the cost of a hotel. But what about after the stay when you’re filing your taxes? In this article, we’ll discuss the tax implications of corporate housing.
Safe Harbor vs. Facts and Circumstances
You may have heard of the “safe harbor test.” That’s an IRS rule that applies to business-related local lodging expenses. But that test only considers lodging not away from home – such as for business meetings, conferences and training – and for less than five days.
To evaluate longer stays, one must use the “facts and circumstances” test. The exceptions we’ll discuss in the following section all come from that IRS test.
Is Corporate Housing Taxable or Tax-Deductible?
As a general rule, the IRS considers corporate apartments to be a fringe benefit, and fringe benefits count as taxable income for an employee. However, there are a few notable exceptions that anyone taking advantage of corporate housing should be aware of.
One such exception is if the lodging is provided for the convenience of the employer. This means that providing the housing aligns directly with the employer’s business interests, and is provided for a substantial business reason that is not related to worker pay, satisfaction or retention.
Another exception is made if the housing is located on the business’s premises. This condition can be met when an employee lives where they perform most of their duties. An example would be a building superintendent who occupies an apartment within the complex that he or she manages. This condition can also be met if an employee lives near the premises but is required to be on call regularly.
Another example in which businesses can deduct the cost of a corporate apartment is if the housing allowance is due to a work-related, temporary relocation.
A significant portion of corporate housing falls under that third category. As long as the assignment lasts for one year or less, and takes place away from the employee’s home (the place where he or she pays income taxes), the housing allowance may be excluded from the employee’s taxable income assessment. It then can be considered a business expense for the employer.[
How Are Corporate Housing Allowances Taxed?
The above section discusses corporate apartments, but what about housing allowances?
Well, the same rules apply in this situation. The housing allowance is considered a business expense for the employer, and a taxable fringe benefit for the employee, unless the employee is:
- Living on the business’s premises
- Housed for the employer’s convenience, or
- Given quarters as a bona-fide condition of employment.
How Do You Deduct Corporate Housing on Your Taxes?
If you’re an employer who pays for corporate housing that is not subject to any of the above exceptions, you can deduct the actual cost of providing the housing.
If you’re an employee who receives housing assistance from your employer, unless the previously mentioned conditions are met, the IRS will consider your corporate housing to be a fringe benefit. Therefore, it is part of your taxable income.
Corporate Housing Is Beneficial for Employees and Employers
For employees, corporate housing may be considered taxable compensation, but it’s still a great perk. You just may have to pay taxes for the privilege.
For employers, the cost of providing corporate housing can result in a substantial tax write-off. And when it comes to saving money on corporate taxes, every credit and deduction helps.