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 employer-provided housing to be a fringe benefit, and fringe benefits count as taxable income for an employee.
An exception is granted if the lodging is for the convenience of the employer, is on the business’s premises, and is provided as a condition of employment. This most often applies to workers in civil service, government, education, or construction or maintenance. An example would be a building superintendent who occupies an apartment within the complex that he or she manages. So this exception, allowing lodging to be excluded from wages, generally would not apply to a business traveler.
The exception that is more relevant for business travel allows a business to deduct the cost of a corporate apartment if the housing is for a work-related, temporary relocation.
A significant portion of corporate housing falls in this category. As long as the assignment lasts for one year or less, and takes place away from the employee’s tax home (the metro area where he or she works), 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 bonafide 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.
Need More Help?
The following IRS publications, while a bit dense, provide lots of guidance and examples straight from the tax horse’s mouth: