IRS considers taxing perks at Google, other tech firms
mercurynews.com
mercurynews.com
Don't have enough money for the payments on your house? No problem, just offer to take a pay cut and move into a "free" house provided by your employer. Alcohol sales tax too high in your state? No problem, just open a bar with "free" alcohol and charge an entry fee to the premises at the door.
In The Netherlands where I reside my employer provides "free" meals but they have to charge me 2 EUR for each one as a matter of law. In some other countries if you give out "free" beers to people you have to pay a mandatory minimum fee for each one etc.
If you don't do that then the optimum financial endgame for a company like Google is to basically turn into some mega corporation that pays its employees almost minimum wage, but provides "free" meals, housing, food, transportation etc. which they don't have to pay any taxes on because it's not being sold to anyone and can all be written off as internal costs.
Compensation isn't just handing someone a dollar bill.
What I find interesting about this is that that seems to be the route Google was going anyway. I remember reading a while back about Google building housing near Mountain View to house employees.
In a way, it's not too different from the old company towns of the industrial revolution (see Pullman Strike) and there is a certain logic to it:
If you want to retain people, hire them right out of college and drop them into a situation that is very much like the university experience. Long hours, lots of work, but free food and you can more or less walk to work and see your friends on a regular basis. It could be pretty attractive to someone straight out of college.
I think the outcry here is that government has much bigger fish to fry than hounding taxpayers over a few thousands bucks worth of free food every year. Your slippery slope argument isn't too far fetched though: this same sort of tax policy is exactly how the U.S. ended up with its ridiculous employer-paid health insurance scheme.
[1] In some cases. See 91 F.3d 72
I know the article repeatedly talks about employees paying additional tax, but at glance such taxes would seem to be paid by employers?
Also, to go off on a bit of a tangent - I've noticed that the perceived size of the "fish to fry" has a way of changing in line with the predilections of the source of the outcry.
Present the same person with the same dollar value as tax increase/break, spending cut/increase and watch their impression of the relative size and opinion of the change turn on a dime.
It would be paid by the employees. Such expenses are tax deductible by employers regardless of whether it’s a taxable benefit or just a cost of doing business.
Of course the incidence of the tax may be different, for example if, due to market forces, employers have to give people raises to cover the increased tax liability.
If you do work and you only get paid in room and board you currently have to pay income tax based on the value of that room and board. I don't really see how this is different; these generally don't sound like working lunches but rather only a form of compensation.
The line for when something is business related and when it isn't is very blurry. I probably socialize a lot more with my coworkers because the company provides us free food and a place to socialize. Previously, when I worked at companies that did not provide meals I ate a significantly higher number of meals at home, alone, or with non-company friends. These meals have a business value to the company, so aren't they a cost of doing business? You could argue that the company also gives me a computer that is more powerful than strictly required to do my job and I can even use it for browsing HN during breaks. Should that be taxed as a perk then?
Do you really think every corporate event is a perk? One friend of mine was just bemoaning the beginning of baseball season because he has to spend so much time at games with his bosses (tickets paid for by the company). Declining the invitation is considered rude and politically unsound.
As far as room and board go, someone staying at an "extended stay" hotel or apartment paid for by the company owes income taxes on it? It certainly isn't compensation from the employee's perspective.
Even your view on coffee is ridiculous- it is clearly a product or tool used to achieve work.
Also, how does the company just "cover the tax" as you so simply put it? Did you consider that not every employee is in the same tax bracket? What if Joe, in bracket A, drinks 4 cups of coffee a day and Jane drinks none at all?
I don't see your other complaints as relevant to taxes. Just because you prefer to do less work and get less compensation doesn't make something not compensation. Using your line of argument, if you ask your boss to go golfing because you think it will l help your career, you should deduct that from your taxes.
I really cannot see the rational argument that says a migrant worker who is being paid in room and board should pay income tax but someone else doing the exact same thing while also collecting a salary and paying for an apartment in another city shouldnt be taxed on the room and board. The hotel seems completely unambiguous as compensation to me.
About coffee being an intermediate product; you might be right.
"Just because you prefer to do less work and get less compensation doesn't make something not compensation."
I lost your train of thought. (Really, not trying to be facetious.)
"Using your line of argument, if you ask your boss to go golfing because you think it will l help your career, you should deduct that from your taxes."
Only if he's not really your friend. [2]
"The hotel seems completely unambiguous as compensation to me."
Your intuition and the law differ. The hotel is deemed an ordinary and necessary cost of doing business for the employer. Putting your employee in another place for a period of time is just the nature of the biz. For some reason, putting up a migrant worker is not?
"About coffee being an intermediate product; you might be right."
Really, I'm just trying to point out that taxes are an arcane, complex issue. Going with whatever you think is intuitive is not necessarily how they work.
[1] http://ledgerlink.monster.com/training/articles/102-irs-goin...
[2] http://www.irs.gov/pub/irs-pdf/i1040sca.pdf (see 4th point on page A-11)
Problem solved. Now most companies offering only small stuff that has traditionally been offered to many employees (coffee, water, ...) are no longer affected and only those who offer substantial perks are included. This is also less work both for the companies and tax collection agencies.
This is pretty much the conclusion I came to when trying to figure out why this would make sense.
The pay for Google engineers is certainly not trending towards minimum wage.
http://www.irs.gov/publications/p15b/ar02.html
Meals on Your Business Premises
You can exclude the value of meals you furnish to an employee from the employee's wages if they meet the following tests.
They are furnished on your business premises.
They are furnished for your convenience.
This exclusion does not apply if you allow your employee to choose to receive additional pay instead of meals.
Assuming AmaGooFaceSoft have prominent, enforced "These meals are provided to be consumed on the premises" signs, they're golden. (I assume that if they don't, they will shortly.)
If the meals really do provide that value, the company can trivially pay the tax on behalf of the employees.
How exactly? You could estimate that meals were valued at $250 a month and then bump the salary of every employee by $250*(marginal federal + marginal state)taxrate so that when their W2 came they would owe tax but they would have the money. But what about people that withhold 10% for a 401k, so the money you bump up has 10% of it contributed to the 401k so you have to bump it an additional 10% to make sure the employee cost hit is neutral. So now you're providing funding to the 401k effectively. And then there are employees who bring their meals and then don't incur the cost but they get the paybump, do they file for a reduction in gross income because they didn't eat the meals, and then just pay marginal tax on the income bump? What about when their spouse came to visit and they ate a meal too, extra bump in income? extra tax? discount?
It isn't "trivially" possible to do anything except kill the benefit. That is "trivially" possible. And the people pushing for this aren't the IRS it's the companies that don't give their employees free food. I believe the free soda perk cancellation at Apple was before the web so it doesn't show up in archives but at one time all the soda machines on the Apple campus were free, and the IRS swooped in and told them to pay tax on them, and the soda was then "not free." I was at Sun (where food and soda was not free) but beer busts were, and thought that would help with our co-workers being poached. And it was part of the reason Sun killed the beer busts according to Crawford Beverage (no lie, that was his name!) who was the VP responsible.
Do you follow through and tax free laundry? sports equipment? medical visits? store discounts? swag at product launches? If you really wanted to nitpick it you could kill a lot of stuff at Google. You don't think some "not Google" company wouldn't prefer to level the playing field a bit?
Now, I'm sure that your tax system is much more dysfunctional than that, and an ignorant European couldn't possibly appreciate all the subtleties of it. But somehow Google manages to nullify the tax effects when doing things like giving fancy consumer electronics as christmas gifts.
On December 31st, you gross up everyone's pay by say $10k, and pay taxes that are the marginal rate for YTD income.
Of course this doesn't fully cover the taxes for dual income high earners, and it can create some additional taxes for employees that have other income, because now their base is $10k higher. In this case, the change will cost these employees up to a few hundred dollars.
A tax change that may cost someone a few hundred dollars, pretty quickly get's lost in the noise when you are talking about multi thousand dollar raises and bonuses.
It's nice to pretend that it as easy as waving your hand and saying everyone got $10k worth of perks, but what about people who didn't? Really, not everyone is eating the corporate food every day. Not everyone is going to the corporate happy hour. It is not fair, or possibly even legal, to just amortize the costs across everyone.
When faced with the accounting and legal overhead, companies are going to throw these perks out the window.
This is, simply put, one of the most absurdly brain-dead stupid things I've ever heard in my life. And I've heard some really stupid ideas in my life.
Whether this goes through or not, it's a perfect example of why we need to end the income tax and eliminate the IRS.
Company A pays an employee $100 per day, and provides a lunch which costs the company $10.
Company B pays the employee $110 per day, but the employee has to provide her own lunch.
Is it really fair that Company B has to pay more tax than Company A? Compensation is compensation, whether in kind or in cash.
The problem with taxing a product is that the actual value is unknown. In your example, taxing the lunch as $10 of income is actually giving the benefit to Company B due to the "reverse inequality of exchange". IE if you buy a $10 lunch, you actually value it more than the $10.
That flexibility might be more valuable to the employee than the nice lunch.
For accounting purposes though, it's $10.
I don't follow what this has to do with income tax, it's presumably a different benefits tax
> and eliminate the IRS
Well no. It's an example of one thing that the IRS can do. If you think it's silly (and I agree), it's an example of a silly thing that the IRS can do. But it's hardly evidence that the whole taxation system is broken.
Assuming a government needs to be funded, I don't think eliminating the income tax would even get rid of the IRS, since it would still need revenue of some sort.
As a side effect, they collect taxes or issue you your driver's license, it is just a means to the end of self-perpetuation.
Eliminating the income tax and going to a much more transparent method like higher fuel taxes (everyone pays them because everyone uses transportation) or some other broadly based consumption tax, would be excellent.
There is a reason why most reasonable people don't actually seriously consider implementing such tax schemes.
I know it's hard for people with good lives and great salaries to understand why, but please ask the people who clean your desks next time you see them what would happen to him/her, if fuel was taxed higher.
Allowing all expenses to be tax deductible would reduce accounting overhead incredibly, and would incentivize consumption and trade.
It's obvious how to tax consumption. It's (fairly) obvious how to tax income. How would you tax savings?
Is buying stock in a company "saving" or "consuming"? Is buying Bitcoins "saving" or "consuming"? What about gold coins/bars? What about guns and ammo? What about a collector car? Artwork? What about a house for personal residential use? What about a house for rental/income use? What about just holding suitcases of $100 bills?
It seems like there would immediately spring up a system of "not treated as savings" savings mechanisms. I seriously doubt that you'd accomplish your intended accounting simplicity...
If I have a car to drive to work, then I should be able to claim some proportion of it as a deduction. Currently that's not allowed (at least in Australia, where I'm from).
There are even countries that have a modest tax on bank accounts.
Google tells the IRS it is non-compensation, but tells prospective employees to value it as compensation.
Also, I know how much $ Google spends with food per employee, and it's a significantly lower number than what I would pay for the same amount and quality of food anywhere -- a small part of that due to no sales tax, but the bulk of savings comes from big economies of scale, very efficient operations, and no profit margin.
I am a Brazilian, and there most companies provide complimentary compensation as food coupons that are subsidized by not paying income or payroll taxes (both are very high in BR). Even higher-salaried employees get these coupons, usually in a value that's proportional to the salary; for an engineer that's high enough you can feed your whole family... when I lived alone I couldn't hope to spend all my coupons, so whenever I had a lot of accumulated excess I'd donate that to a charity. Now THAT is an obvious loophole to increase wages at the expense of taxes. Compared to this, the free food in companies like Google is available only to the employee, only at office, and it has no relation to your salary -- everybody gets the same food and other office perks.
There's an important element of healthcare too. Companies that can afford to provide free lunches are always also, companies that subsidize most or all of their employee's health insurance, which is a huge cost. The company has interest in managing employee health to minimize costs of insurance and sick leave; and Google certainly does that, they use lots of tricks and tactics to promote a healthy diet.
To summarize, this is much more complex than just "giving freebies" like some other posters think.
Some random employee brought in their Keurig machine and lets the other employees use it. That what passes for "perks" for the rank-and-file.
[1] http://soquoted.blogspot.com/2006/03/memo-from-fedland.html
But yeah, the memo is spot-on in many respects (15.62 exact == smartass) but unrealistic in others. For example I haven't seem this many words correctly spelled in a memo since I was on submarine duty, and no one here would be able to figure out how to word logic as twisted as that described.
Instead they would probably omit major details that need deciding while repeating minor details, slightly differently each time so that you can't be sure whether it's a unique requirement or not...
That's from a barista at Google.
http://en.wikipedia.org/wiki/Financial_transaction_tax#Unite...
On the other hand, we must pay tax on our health insurance, as the PRC laws on this subject are still too ambiguous.