May 10, 2024

The IRS released a fact sheet on April 13 clarifying the tax treatment and potential tax free provision of work-life referral (WLR) services provided to employees. As defined in the fact sheet, a “work-life referral” (WLR) program is an employer-funded fringe benefit that provides WLR services to eligible employees. WLR services (sometimes referred to as caregiver/caretaker navigation services or concierge services) are restricted to informational and referral consultations that assist employees with identifying, contacting, and negotiating with life-management resources for solutions to a personal, work, or family challenge.

WLR services include assistance with completing paperwork and basic administrative tasks that help direct the employee to appropriate providers of the necessary underlying life-management resources (e.g., adult- and child-care centers, financial services providers, home repair tradespeople). WLR programs work with subject-matter specialists who are trained in helping employees navigate through work-life challenges involving access to and eligibility for child and elder care, healthcare, government and employer-provided benefits, and legal and financial issues.

Background Summary - De Minimis Fringe under Internal Revenue Code (IRC) Section 132

In general, an individual’s gross income includes “all income from whatever source” and includes the value of benefits and other items or services that may be paid on behalf of the individual by their employer unless an exclusion or other term applies. For example, the value of a health plan paid for by the employer is not counted towards “income” because of an exclusion in the tax code.

Similarly, IRC Section 132 provides an exclusion for a de minimis fringe benefit which refers to any small value property or service that an employer provides to an employee, and which is considered so insignificant that accounting for it would be unreasonable or impractical. Certain items, however – such as cash and cash equivalent fringes (e.g., a gift certificate) – cannot be de minimis fringes.

How may the IRS guidance impact taxability of WLR services?

The IRS fact sheet clarifies that WLR services may qualify as de minimis fringe benefits. WLR services will qualify as de minimis fringes if they are provided “on a relatively infrequent basis” and “do not represent a substantial cost to the employer,” thus excluding them from employees' gross income and exempting them from employment taxes. Employers should work with their vendors and consultants and/or counsel to review the frequency and cost factors of any WLR benefits and assess any questions regarding the tax status.

Because the application of the de minimis fringe exclusion has long applied on a case-by-case basis, some employers may have utilized the IRC 132 analysis for WLR-type services even prior to this guidance and believed they could be excluded from income. Nevertheless, having clarity on this issue from the IRS directly is helpful for employers to ensure appropriate tax treatment of any WLR benefits.

Note: WLR support that is intended to be tax free as de minimis fringe may not pay for the actual service that is being sought or connected to with the assistance of the WLR service provider. Only the employer’s payment for the navigation assistance in finding and getting connected to a service provider may be considered WLR services that would be tax free as de minimis fringe.

Additional Information

• Because this information is issued as an FAQ/fact sheet and not through other means like regulations or an Internal Revenue Bulletin, the IRS notes that its scope and reliability is limited but that employers/taxpayers relying on it in good faith should not be subject to penalties.
• This guidance does not necessarily cover WLR services that are integrated with an Employee Assistance Program (EAP).

We provide this material for informational purposes only; it is not a substitute for legal advice.

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