ES: Tax Treatment of Work-Life Referral Services

The IRS has provided informal guidance on the federal income tax treatment to an employee of certain work-life referral services offered as an employee benefit.

What Is a Work-Life Referral Program?

A work-life referral program is an employer-provided benefit that helps eligible employees find and access resources to address personal, family, or work-related challenges. Rather than providing direct services, these programs assist employees in identifying, contacting, and coordinating with third-party life-management professionals and organizations.

Work-life referral services may help employees with a wide range of needs, including:

• Identifying appropriate education, care, and medical service providers
• Selecting child care or dependent care programs
• Navigating eligibility for government benefits, including Veterans Administration benefits
• Understanding and using paid leave programs offered by an employer or by state or local governments
• Locating home service professionals who specialize in modifications for individuals with special care needs
• Navigating the health care system, including private insurance, public programs, and available medical travel benefits
• Connecting with retirement planning and financial planning professionals

These services are typically advisory and referral-based in nature, helping employees make informed decisions without the employer directly paying for or providing the underlying services.

How are work-life referral services taxed?

A fringe benefit provided by an employer is generally presumed to be taxable income to the employee unless it is specifically excluded from gross income under the Internal Revenue Code. One such exclusion applies to de minimis fringe benefits—benefits that are so small in value and provided so infrequently that accounting for them would be unreasonable or administratively impracticable.

IRS guidance explains that work-life referral programs may be offered to a large portion of an employer’s workforce, but employees typically use these services only occasionally and only when facing specific personal or family challenges the programs are designed to address.

Based on these factors, the IRS concluded that work-life referral services qualify as de minimis fringe benefits and are therefore excluded from employees’ gross income. As a result, these services are also excluded from federal employment taxes, including FICA (Social Security and Medicare taxes), FUTA (federal unemployment tax), and federal income tax withholding.

Work-life referral services are often provided as part of an employee assistance program (EAP) or bundled with other employer-sponsored services. However, the IRS guidance applies only to the work-life referral services themselves. It does not address the tax treatment of other life-management services offered through an EAP or bundled programs. Under general tax rules, those additional services are presumed to be taxable income to the employee unless a specific exclusion under the Internal Revenue Code applies.

IMPORTANT DISCLOSURES

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

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