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Contents

What’s New . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Publication 15-B

Reminders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Employer’s Tax

Guide to

Fringe

Benefits

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

For use in

2026

1. Fringe Benefit Overview . . . . . . . . . . . . . . . . . . . 3

2. Fringe Benefit Exclusion Rules . . . . . . . . . . . . . . 5

Accident and Health Benefits . . . . . . . . . . . . . . . . 7

Achievement Awards . . . . . . . . . . . . . . . . . . . . . 8

Adoption Assistance . . . . . . . . . . . . . . . . . . . . . . 9

Athletic Facilities . . . . . . . . . . . . . . . . . . . . . . . . . 9

De Minimis (Minimal) Benefits . . . . . . . . . . . . . . 10

Dependent Care Assistance . . . . . . . . . . . . . . . 10

Educational Assistance . . . . . . . . . . . . . . . . . . . 11

Employee Discounts . . . . . . . . . . . . . . . . . . . . . 12

Employee Stock Options . . . . . . . . . . . . . . . . . . 13

Employer-Provided Cell Phones . . . . . . . . . . . . . 14

Group-Term Life Insurance Coverage . . . . . . . . . 14

Health Savings Accounts (HSAs) . . . . . . . . . . . . 17

Lodging on Your Business Premises . . . . . . . . . . 18

Meals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

No-Additional-Cost Services . . . . . . . . . . . . . . . 20

Retirement Planning Services . . . . . . . . . . . . . . 21

Transportation (Commuting) Benefits . . . . . . . . . 21

Tuition Reduction . . . . . . . . . . . . . . . . . . . . . . . 23

Working Condition Benefits . . . . . . . . . . . . . . . . 23

3. Fringe Benefit Valuation Rules . . . . . . . . . . . . . 26

General Valuation Rule . . . . . . . . . . . . . . . . . . . 26

Cents-per-Mile Rule . . . . . . . . . . . . . . . . . . . . . 26

Commuting Rule . . . . . . . . . . . . . . . . . . . . . . . . 27

Lease Value Rule . . . . . . . . . . . . . . . . . . . . . . . 28

Unsafe Conditions Commuting Rule . . . . . . . . . . 30

4. Rules for Withholding, Depositing, and

Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

How To Get Tax Help . . . . . . . . . . . . . . . . . . . . . . . 33

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Future Developments

For the latest information about developments related to

Pub. 15-B, such as legislation enacted after it was

published, go to IRS.gov/Pub15B.

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What’s New

Cents-per-mile rule. The business mileage rate for 2026

hasn’t yet published at the time this publication was published. Go to IRS.gov/Pub15B for the updated mileage

rate for 2026. You may use this rate to reimburse an employee for business use of a personal vehicle, and under

Publication 15-B (2026) Catalog Number 29744N

Department of the Treasury Internal Revenue Service www.irs.gov

certain conditions, you may use the rate under the

cents-per-mile rule to value the personal use of a vehicle

you provide to an employee. See Cents-per-Mile Rule in

section 3.

Qualified parking exclusion and commuter transportation benefit. For 2026, the monthly exclusion for qualified parking is $340 and the monthly exclusion for commuter highway vehicle transportation and transit passes is

$340. See Qualified Transportation Benefits in section 2.

Contribution limit on a health flexible spending arrangement (FSA). For plan years beginning in 2026, a

cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of

$3,400.

Moving expense reimbursement. P.L. 119-21, commonly known as the One Big Beautiful Bill Act, permanently eliminates the exclusion for qualified moving expense reimbursements from your employee's income.

However, the exclusion is available in the case of a member of the U.S. Armed Forces on active duty who moves

because of a permanent change of station due to a military order. The exclusion applies only to reimbursement of

moving expenses that the member could deduct if they

had paid or incurred them without reimbursement. See

Moving Expenses in Pub. 3, Armed Forces’ Tax Guide, for

the definition of what constitutes a permanent change of

station and to learn which moving expenses are deductible.

P.L. 119-21 also makes the exclusion available to an

employee or new appointee of the intelligence community

(as defined in section 3 of the National Security Act of

1947 (50 U.S.C. 3003)) (other than a member of the

Armed Forces of the United States) who moves pursuant

to a change in assignment which requires relocation. The

exclusion applies only to reimbursement of moving expenses that an intelligence community employee or appointee

could deduct if they had paid or incurred them without reimbursement.

Bicycle commuting reimbursements. P.L. 119-21 permanently eliminates the exclusion of qualified bicycle

commuting reimbursements from your employee’s income

for tax years beginning after 2025. See Qualified bicycle

commuting reimbursement eliminated, later.

Withholding on supplemental wages. The withholding

rate on supplemental wages remains 22% (37% if supplemental wages paid to an employee during the calendar

year exceed $1 million) because P.L. 119-21 permanently

extended the individual tax rates enacted in P.L. 115-97,

Tax Cuts and Jobs Act. See section 7 in Pub. 15 for more

information about supplemental wages.

Artificial intelligence (AI) literacy and AI development

programs. Executive Order (EO) 14179, “Removing Barriers to American Leadership in Artificial Intelligence”

(January 2025), and the subsequently published Winning

the Race: America’s AI Action Plan (July 2025), were issued to promote AI literacy and development. Employer-provided AI literacy and skill development programs may be tax-free as working condition fringe

benefits if they maintain or improve employee job skills at

their current job. See Working Condition Benefits, later.

Direct deposit of employment tax refunds now available. EO 14247, Modernizing Payments To and From

America’s Bank Account, issued on March 25, 2025, promotes operational efficiency by mandating the transition to

electronic payments for all federal disbursements. Accordingly, the IRS will now issue employment tax return refunds by direct deposit. Direct deposit is a fast, simple,

safe, and secure way to have your refund deposited automatically to your checking or savings account. Instead of a

direct deposit refund, you can still choose to have your

overpayment applied to your next return by checking the

appropriate box on your employment tax return. For more

information, see the instructions for your employment tax

return.

Make balance due payments electronically. EO 14247

also promotes operational efficiency by mandating the

transition to electronic payments for all payments made to

the federal government. Therefore, pay your balance due

on your employment tax return electronically. There are

several easy, safe, and secure ways to pay your balance

due electronically. For more information, see the instructions for your employment tax return.

Employment tax return transcripts are now available

electronically. You can now access Form 940, Form 941,

Form 943, Form 944, and Form 945 return transcripts for

tax years 2023 and later using your IRS business tax account. For more information, go to IRS.gov/

BusinessesTranscript. To access your IRS business tax

account, go to IRS.gov/BusinessAccount.

Dependent care assistance exclusion from wages.

For the 2026 tax year, the annual dependent care FSA

limit was raised from $5,000 to $7,500 ($2,500 to $3,750

for married filing separately). See Exclusion from wages,

later.

Employer’s meal deduction. For amounts incurred or

paid after 2025, the employer can no longer deduct expenses associated with providing food and beverages to

employees through an eating facility that meets the requirements for de minimis fringe benefits or for the convenience of the employer. The 50% deduction that applied

through 2025 has been eliminated as part of a scheduled

change in the 2017 Tax Cuts and Jobs Act. See De Minimis Meals, later.

Employer payments of student loans. P.L. 119-21 permanently extends the $5,250 exclusion from income for

employer-provided educational assistance for payments

made after 2025. See Exclusion for employer payments of

student loans, later.

Reminders

Form 1099-NEC, Nonemployee Compensation. Use

Form 1099-NEC to report nonemployee compensation

paid in 2025. The 2025 Form 1099-NEC is due February

2, 2026.

Additional permitted election changes for health coverage under a cafeteria plan. Notice 2014-55, 2014-41

I.R.B.

672,

available

IRS.gov/irb/

2014-41_IRB#NOT-2014-55, expands the application of

Publication 15-B (2026)

the permitted change rules for health coverage under a

cafeteria plan and discusses two specific situations in

which a cafeteria plan participant is permitted to revoke

their election under a cafeteria plan during a period of coverage.

Definition of marriage. A marriage of two individuals is

recognized for federal tax purposes if the marriage is recognized by the state or territory of the United States in

which the marriage is entered into, regardless of legal residence. Two individuals who enter into a relationship that is

denominated as a marriage under the laws of a foreign jurisdiction are recognized as married for federal tax purposes if the relationship would be recognized as a marriage

under the laws of at least one state or territory of the United States, regardless of legal residence. Individuals who

have entered into a registered domestic partnership, civil

union, or other similar relationship that isn’t denominated

as a marriage under the law of the state or territory of the

United States where such relationship was entered into

aren’t lawfully married for federal tax purposes, regardless

of legal residence.

Notice 2014-1 discusses how certain rules for cafeteria

plans, including health and dependent care FSAs, and

health savings accounts (HSAs) apply to same-sex spouses participating in employee benefit plans. Notice

2014-1, 2014-2 I.R.B. 270, is available at IRS.gov/irb/

2014-02_IRB#NOT-2014-1.

Getting tax forms, instructions, and publications. Go

to IRS.gov/Forms to download current and prior-year

forms, instructions, and publications.

Ordering tax forms, instructions, and publications.

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prior-year forms and instructions. The IRS will process

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you’ve already sent us. You can get forms, instructions,

and publications faster online.

Getting answers to your tax questions. If you have a

tax question not answered by this publication, check

IRS.gov and How To Get Tax Help at the end of this publication.

Photographs of missing children. The IRS is a proud

partner with the National Center for Missing & Exploited

Children® (NCMEC). Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring

these children home by looking at the photographs and

calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

Introduction

This publication supplements Pub. 15, Employer’s Tax

Guide; and Pub. 15-A, Employer’s Supplemental Tax

Guide. It contains information for employers on the employment tax treatment of fringe benefits.

You can send us

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Tax Forms and Publications

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consider your comments and suggestions as we revise

our tax forms, instructions, and publications. Don’t send

tax questions, tax returns, or payments to this address.

1. Fringe Benefit Overview

A fringe benefit is a form of pay for the performance of

services. For example, you provide an employee with a

fringe benefit when you allow the employee to use a business vehicle to commute to and from work.

Performance of services. A person who performs services for you doesn’t have to be your employee. A person

may perform services for you as an independent contractor, partner, or director. Also, for fringe benefit purposes,

treat a person who agrees not to perform services (such

as under a covenant not to compete) as performing services.

Provider of benefit. You’re the provider of a fringe benefit if it is provided for services performed for you. You’re

considered the provider of a fringe benefit even if a third

party, such as your client or customer, provides the benefit

to your employee for services the employee performs for

you. For example, if, in exchange for goods or services,

your customer provides daycare services as a fringe benefit to your employees for services they provide for you as

their employer, then you’re the provider of this fringe benefit even though the customer is actually providing the daycare.

Recipient of benefit. The person who performs services

for you is considered the recipient of a fringe benefit provided for those services. That person may be considered

the recipient even if the benefit is provided to someone

who didn’t perform services for you. For example, your

employee may be the recipient of a fringe benefit you provide to a member of the employee’s family.

Are Fringe Benefits Taxable?

Any fringe benefit you provide is taxable and must be included in the recipient’s pay unless the law specifically excludes it. Section 2 discusses the exclusions that apply to

certain fringe benefits. Any benefit not excluded under the

rules discussed in section 2 is taxable.

Comments and suggestions. We welcome your comments about this publication and your suggestions for future editions.

Publication 15-B (2026)

Including taxable benefits in pay. You must include in

a recipient’s pay the amount by which the value of a fringe

benefit is more than the sum of the following amounts.

• Any amount the law excludes from pay.

• Any amount the recipient paid for the benefit.

The rules used to determine the value of a fringe benefit

are discussed in section 3.

If the recipient of a taxable fringe benefit is your employee, the benefit is generally subject to employment

taxes and must be reported on Form W-2, Wage and Tax

Statement. However, you can use special rules to withhold, deposit, and report the employment taxes. These

rules are discussed in section 4.

If the recipient of a taxable fringe benefit isn’t your employee, the benefit isn’t subject to employment taxes.

However, you may have to report the benefit on one of the

following information returns.

IF the recipient

receives the benefit

as...

THEN use...

an independent

contractor

Form 1099-NEC.

a partner

Schedule K-1 (Form 1065), Partner’s

Share of Income, Deductions, Credits,

etc.

For more information, see the instructions for the forms listed above.

Cafeteria Plans

A cafeteria plan, including an FSA, provides participants

an opportunity to receive qualified benefits on a pre-tax

basis. It is a written plan that allows your employees to

choose between receiving cash or taxable benefits, instead of certain qualified benefits for which the law provides an exclusion from wages. If an employee chooses to

receive a qualified benefit under the plan, the fact that the

employee could have received cash or a taxable benefit

instead won’t make the qualified benefit taxable.

Generally, a cafeteria plan doesn’t include any plan that

offers a benefit that defers pay. However, a cafeteria plan

can include a qualified 401(k) plan as a benefit. Also, certain life insurance plans maintained by educational institutions can be offered as a benefit even though they defer

pay.

Qualified benefits. A cafeteria plan can include the following benefits discussed in section 2.

• Accident and health benefits (but not Archer medical

savings accounts (Archer MSAs) or long-term care insurance).

• Adoption assistance.

• Dependent care assistance.

• Group-term life insurance coverage (including costs

that can’t be excluded from wages).

• HSAs. Distributions from an HSA may be used to pay

eligible long-term care insurance premiums or to pay

for qualified long-term care services.

Benefits not allowed. A cafeteria plan can’t include the

following benefits discussed in section 2.

• Archer MSAs. See Accident and Health Benefits in

section 2.

• Athletic facilities.

• De minimis (minimal) benefits.

• Educational assistance.

• Employee discounts.

• Employer-provided cell phones.

• Lodging on your business premises.

• Meals.

• No-additional-cost services.

• Retirement planning services.

• Transportation (commuting) benefits.

• Tuition reduction.

• Working condition benefits.

It also can’t include scholarships or fellowships (discussed in Pub. 970).

Contribution limit on a health FSA. For plan years beginning in 2026, a cafeteria plan may not allow an employee to request salary reduction contributions for a

health FSA in excess of $3,400.

A cafeteria plan that doesn’t limit health FSA contributions to the dollar limit isn’t a cafeteria plan and all benefits

offered under the plan are includible in the employee’s

gross income.

For more information, see Notice 2012-40, 2012-26

I.R.B.

1046,

available

IRS.gov/irb/

2012-26_IRB#NOT-2012-40.

“Use-or-lose” rule for health FSAs. Instead of a grace

period, you may, at your option, amend your cafeteria plan

to allow an employee’s unused contributions to carry over

to the immediately following plan year. For more information, see Notice 2013-71, 2013-47 I.R.B. 532, available at

IRS.gov/irb/2013-47_IRB#NOT-2013-71;

and

Notice

2020-33, 2020-22 I.R.B. 868, available at IRS.gov/irb/

2020-22_IRB#NOT-2020-33.

Employee. For these plans, treat the following individuals as employees.

• A current common-law employee. See section 2 in

Pub. 15.

• A full-time life insurance agent who is a current statutory employee.

• A leased employee who has provided services to you

on a substantially full-time basis for at least a year if

the services are performed under your primary direction or control.

Publication 15-B (2026)

Exception for S corporation shareholders. Don’t

treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder for this purpose is someone who directly or indirectly owns (for any day during the tax year) more than 2%

of the corporation’s stock or stock with more than 2% of

the voting power. Treat a 2% shareholder as you would a

partner in a partnership for fringe benefit purposes, but

don’t treat the benefit as a reduction in distributions to the

2% shareholder. For more information, see Revenue Ruling 91-26, 1991-1 C.B. 184.

Plans that favor highly compensated employees. If

your plan favors highly compensated employees as to eligibility to participate, contributions, or benefits, you must

include in their wages the value of taxable benefits they

could have selected. A plan you maintain under a collective bargaining agreement doesn’t favor highly compensated employees.

A highly compensated employee for this purpose is any

of the following employees.

you reasonably expect to employ an average of 100 or

fewer employees in the current year. If you establish a simple cafeteria plan in a year that you employ an average of

100 or fewer employees, you’re considered an eligible employer for any subsequent year until the year after you employ an average of 200 or more employees.

Eligibility and participation requirements. These requirements are met if all employees who had at least

1,000 hours of service for the preceding plan year are eligible to participate and each employee eligible to participate in the plan may elect any benefit available under the

plan. You may elect to exclude from the plan employees

who:

1. Are under age 21 before the close of the plan year,

2. Have less than 1 year of service with you as of any

day during the plan year,

1. An officer.

3. Are covered under a collective bargaining agreement

if there is evidence that the benefits covered under the

cafeteria plan were the subject of good-faith bargaining, or

2. A shareholder who owns more than 5% of the voting

power or value of all classes of the employer’s stock.

4. Are nonresident aliens working outside the United

States whose income didn’t come from a U.S. source.

3. An employee who is highly compensated based on

the facts and circumstances.

4. A spouse or dependent of a person described in (1),

(2), or (3).

Plans that favor key employees. If your plan favors key

employees, you must include in their wages the value of

taxable benefits they could have selected. A plan favors

key employees if more than 25% of the total of the nontaxable benefits you provide for all employees under the plan

go to key employees. However, a plan you maintain under

a collective bargaining agreement doesn’t favor key employees.

A key employee during 2026 is generally an employee

who is either of the following.

1. An officer having annual pay of more than $235,000.

2. An employee who for 2026 is either of the following.

a. A 5% owner of your business.

b. A 1% owner of your business whose annual pay is

more than $150,000.

Simple Cafeteria Plans for Small

Businesses

Eligible employers meeting contribution requirements and

eligibility and participation requirements can establish a

simple cafeteria plan. Simple cafeteria plans are treated

as meeting the nondiscrimination requirements of a cafeteria plan and certain benefits under a cafeteria plan.

Eligible employer. You’re an eligible employer if you

employed an average of 100 or fewer employees during

either of the 2 preceding years. If your business wasn’t in

existence throughout the preceding year, you’re eligible if

Publication 15-B (2026)

Contribution requirements. You must make a contribution to provide qualified benefits on behalf of each qualified employee in an amount equal to:

1. A uniform percentage (not less than 2%) of the employee’s compensation for the plan year; or

2. An amount that is at least 6% of the employee’s compensation for the plan year or twice the amount of the

salary reduction contributions of each qualified employee, whichever is less.

If the contribution requirements are met using option (2),

the rate of contribution to any salary reduction contribution

of a highly compensated or key employee can’t be greater

than the rate of contribution to any other employee.

More information. For more information about cafeteria

plans, see section 125 of the Internal Revenue Code and

its regulations.

2. Fringe Benefit Exclusion

Rules

This section discusses the exclusion rules that apply to

fringe benefits. These rules exclude all or part of the value

of certain benefits from the recipient’s pay.

In most cases, the excluded benefits aren’t subject to

federal income tax withholding, social security tax, Medicare tax, federal unemployment tax under the Federal Unemployment Tax Act (FUTA), or Railroad Retirement Tax

Act (RRTA) taxes and aren’t reported on Form W-2.

Table 2-1. Special Rules for Various Types of Fringe Benefits

(For more information, see the full discussion in this section.)

Treatment Under Employment Taxes

Type of fringe benefit

Income tax withholding

Social Security and Medicare

(including Additional Medicare

Tax when wages are paid in

excess of $200,000)1

Exempt

Federal unemployment (FUTA)

Accident and health benefits

Exempt (except 2%

shareholder-employees of S

corporations).

Achievement awards

Exempt2 up to $1,600 for qualified plan awards ($400 for nonqualified awards).

Adoption assistance

Exempt2 3

Athletic facilities

Exempt if substantially all use during the calendar year is by employees, their spouses, and their dependent

children, and the facility is operated by the employer on premises owned or leased by the employer.

De minimis (minimal) benefits

Exempt

Dependent care assistance

Exempt up to certain limits, $7,500 ($3,750 for married employee filing separate return).

Educational assistance

Exempt up to $5,250 of benefits each year. (See Educational Assistance, later in this section.)

Employee discounts

Exempt3 up to certain limits. (See Employee Discounts, later in this section.)

Employee stock options

See Employee Stock Options, later in this section.

Employer-provided cell phones

Exempt if provided primarily for noncompensatory business purposes.

Group-term life insurance coverage

Health savings accounts (HSAs)

Taxable

Exempt

Taxable

Exempt

Exempt2 4 6 up to cost of $50,000 of Exempt

coverage. (Special rules apply to

former employees.)

Exempt for qualified individuals up to the HSA contribution limits. (See Health Savings Accounts, later in this

section.)

Lodging on your business premises Exempt2 if furnished on your business premises, for your convenience, and as a condition of employment.

Meals

Exempt2 if furnished on your business premises for your convenience.

Exempt if de minimis.

No-additional-cost services

Exempt3

Retirement planning services

Exempt

Exempt5

Exempt2 up to certain limits if for rides in a commuter highway vehicle and/or transit passes ($340) or qualified

Transportation (commuting) benefits parking ($340). (See Transportation (Commuting) Benefits, later in this section.)

Exempt if de minimis.

Tuition reduction

Exempt3 if for undergraduate education (or graduate education if the employee performs teaching or research

activities).

Working condition benefits

Exempt

Or other railroad retirement taxes, if applicable.

Exemption doesn’t apply to S corporation employees who are 2% shareholders.

Exemption doesn’t apply to certain highly compensated employees under a program that favors those employees.

Exemption doesn’t apply to certain key employees under a plan that favors those employees.

Exemption doesn’t apply to services for tax preparation, accounting, legal, or brokerage services.

You must include in your employee’s wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid

toward the insurance. Report it as wages in boxes 1, 3, and 5 of the employee’s Form W-2. Also, show it in box 12 with code C. The amount is subject to social

security and Medicare taxes, and you may, at your option, withhold federal income tax.

This section discusses the exclusion rules for the following fringe benefits.

• Accident and health benefits.

• Achievement awards.

• Adoption assistance.

• Athletic facilities.

• De minimis (minimal) benefits.

• Dependent care assistance.

• Educational assistance.

• Employee discounts.

• Employee stock options.

• Employer-provided cell phones.

• Group-term life insurance coverage.

• HSAs.

• Lodging on your business premises.

• Meals.

• No-additional-cost services.

• Retirement planning services.

• Transportation (commuting) benefits.

• Tuition reduction.

• Working condition benefits.

See Table 2-1 for an overview of the employment tax

treatment of these benefits.

Publication 15-B (2026)

Accident and Health Benefits

This exclusion applies to contributions you make to an accident or health plan for an employee, including the following.

• Contributions to the cost of accident or health insurance including qualified long-term care insurance.

• Contributions to a separate trust or fund that directly or

through insurance provides accident or health benefits.

• Contributions to Archer MSAs or HSAs (discussed in

Pub. 969).

This exclusion also applies to payments you directly or

indirectly make to an employee under an accident or

health plan for employees that are either of the following.

• Payments or reimbursements of medical expenses.

• Payments for specific permanent injuries (such as the

loss of the use of an arm or leg). The payments must

be figured without regard to the period the employee is

absent from work.

Accident or health plan. This is an arrangement that

provides benefits for your employees, their spouses, their

dependents, and their children (under age 27 at the end of

the tax year) in the event of personal injury or sickness.

The plan may be insured or noninsured and doesn’t need

to be in writing.

Employee. For this exclusion, treat the following individuals as employees.

• A current common-law employee.

• A full-time life insurance agent who is a current statutory employee.

• A retired employee.

• A former employee you maintain coverage for based

on the employment relationship.

• A surviving spouse of an individual who died while an

employee.

• A surviving spouse of a retired employee.

• For the exclusion of contributions to an accident or

health plan, a leased employee who has provided

services to you on a substantially full-time basis for at

least a year if the services are performed under your

primary direction or control.

Special rule for certain government plans. For certain government accident and health plans, payments to a

deceased employee’s beneficiary may qualify for the exclusion from gross income if the other requirements for exclusion are met. See section 105(j) for details.

Exception for S corporation shareholders. Don’t

treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder is someone who directly or indirectly owns (for any

day during the tax year) more than 2% of the corporation’s

stock or stock with more than 2% of the voting power.

Publication 15-B (2026)

Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but don’t treat the benefit as a reduction in distributions to the 2% shareholder.

For more information, see Revenue Ruling 91-26, 1991-1

C.B. 184.

Exclusion from wages. You can generally exclude the

value of accident or health benefits you provide to an employee from the employee’s wages.

Exception for certain long-term care benefits. You

can’t exclude contributions to the cost of long-term care

insurance from an employee’s wages subject to federal income tax withholding if the coverage is provided through a

flexible spending or similar arrangement. This is a benefit

program that reimburses specified expenses up to a maximum amount that is reasonably available to the employee

and is less than five times the total cost of the insurance.

However, you can exclude these contributions from the

employee’s wages subject to social security, Medicare,

and FUTA taxes.

S corporation shareholders. Because you can’t

treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the value of accident or health benefits you provide to the employee in

the employee’s wages subject to federal income tax withholding. However, you can exclude the value of these benefits (other than payments for specific injuries or illnesses

not made under a plan set up to benefit all employees or

certain groups of employees) from the employee’s wages

subject to social security, Medicare, and FUTA taxes. See

Announcement 92-16 for more information. You can find

Announcement 92-16 on page 53 of Internal Revenue Bulletin 1992-5.

Exception for highly compensated employees. If

your plan is a self-insured medical reimbursement plan

that favors highly compensated employees, you must include all or part of the amounts you pay to these employees in box 1 of Form W-2. However, you can exclude

these amounts (other than payments for specific injuries

or illnesses not made under a plan set up to benefit all employees or certain groups of employees) from the employee’s wages subject to federal income tax withholding and

social security, Medicare, and FUTA taxes.

A self-insured plan is a plan that reimburses your employees for medical expenses not covered by an accident

or health insurance policy.

A highly compensated employee for this exception is

any of the following individuals.

• One of the five highest paid officers.

• An employee who owns (directly or indirectly) more

than 10% in value of the employer’s stock.

• An employee who is among the highest paid 25% of

all employees (other than those who can be excluded

from the plan).

For more information on this exception, see section

105(h) of the Internal Revenue Code and its regulations.

COBRA premiums. The exclusion for accident and

health benefits applies to amounts you pay to maintain

medical coverage for a current or former employee under

the Combined Omnibus Budget Reconciliation Act of

1986 (COBRA). The exclusion applies regardless of the

length of employment, whether you directly pay the premiums or reimburse the former employee for premiums paid,

and whether the employee’s separation is permanent or

temporary.

Qualified small employer health reimbursement arrangements (QSEHRAs). QSEHRAs allow eligible small

employers to pay or reimburse medical care expenses, including health insurance premiums, of eligible employees

and their family members. A QSEHRA isn’t a group health

plan, and, therefore, isn’t subject to group health plan requirements. Generally, payments from a QSEHRA to reimburse an eligible employee’s medical expenses aren’t includible in the employee’s gross income if the employee

has coverage that provides minimum essential coverage,

as defined in section 5000A(f) of the Internal Revenue

Code.

A QSEHRA is an arrangement that meets all the following requirements.

1. The arrangement is funded solely by you, and no salary reduction contributions may be made under the

arrangement.

2. The arrangement provides, after the eligible employee

provides proof of coverage, for the payment or reimbursement of the medical expenses incurred by the

employee or the employee’s family members.

3. The amount of payments and reimbursements

doesn’t exceed $6,450 ($13,100 for family coverage)

for 2026.

4. The arrangement is generally provided on the same

terms to all your eligible employees. However, your

QSEHRA may exclude employees who haven’t completed 90 days of service, employees who haven’t

reached age 25 before the beginning of the plan year,

part-time or seasonal employees, employees covered

by a collective bargaining agreement if health benefits

were the subject of good-faith bargaining, and employees who are nonresident aliens with no earned income from sources within the United States.

Eligible employer. To be an eligible employer, you

must not be an applicable large employer, which is defined as an employer that generally employed at least 50

full-time employees, including full-time equivalent employees, in the prior calendar year. You must also not offer a

group health plan (including a health reimbursement arrangement (HRA) or a health FSA) to any of your employees. For more information about the Affordable Care Act

and group health plan requirements, go to IRS.gov/ACA.

For more information about QSEHRAs, including information about the requirement to give a written notice to each

eligible employee, see Notice 2017-67, 2017-47 I.R.B.

517, available at IRS.gov/irb/2017-47_IRB#NOT-2017-67.

Reporting requirements. You must report in box 12

of Form W-2 using code FF the amount of payments and

reimbursements that your employee is entitled to receive

from the QSEHRA for the calendar year without regard to

the amount of payments or reimbursements actually received. For example, if your QSEHRA provides a permitted benefit of $3,000 and your employee receives reimbursements of $2,000, on Form W-2, you would report a

permitted benefit of $3,000 in box 12 using code FF.

Achievement Awards

This exclusion applies to the value of any tangible personal property you give to an employee as an award for either length of service or safety achievement. The exclusion doesn’t apply to awards of cash, cash equivalents,

gift cards, gift coupons, or gift certificates (other than arrangements granting only the right to select and receive

tangible personal property from a limited assortment of

items preselected or preapproved by you). The exclusion

also doesn’t apply to vacations, meals, lodging, tickets to

theater or sporting events, stocks, bonds, other securities,

and other similar items. An achievement award must meet

all the following requirements.

• It is given to an employee for length of service or

safety achievement.

• It is awarded as part of a meaningful presentation.

• It is awarded under conditions and circumstances that

don’t create a significant likelihood of disguised pay.

Employee. For this exclusion, treat the following individuals as employees.

• A current employee.

• A former common-law employee you maintain cover-

age for in consideration of or based on an agreement

relating to prior service as an employee.

• A leased employee who has provided services to you

on a substantially full-time basis for at least a year if

the services are performed under your primary direction or control.

Exception for S corporation shareholders. Don’t

treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder is someone who directly or indirectly owns (for any

day during the tax year) more than 2% of the corporation’s

stock or stock with more than 2% of the voting power.

Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but don’t treat the benefit as a reduction in distributions to the 2% shareholder.

For more information, see Revenue Ruling 91-26, 1991-1

C.B. 184.

Exclusion from wages. You can generally exclude the

value of achievement awards you give to an employee

from the employee’s wages if their cost isn’t more than the

amount you can deduct as a business expense for the

year. The excludable annual amount is $1,600 ($400 for

awards that aren’t “qualified plan awards”).

Publication 15-B (2026)

Deduction limit. Your deduction for the cost of employee achievement awards given to any one employee

during the tax year is limited to the following.

• $400 for awards that aren’t qualified plan awards.

• $1,600 for all awards, whether or not qualified plan

awards.

A qualified plan award is an achievement award given

as part of an established written plan or program that

doesn’t favor highly compensated employees as to eligibility or benefits.

A highly compensated employee is an employee who

meets either of the following tests.

2. It doesn’t pay more than 5% of its payments during

the year for shareholders or owners (or their spouses

or dependents). A shareholder or owner is someone

who owns (on any day of the tax year) more than 5%

of the stock or of the capital or profits interest of your

business.

3. You give reasonable notice of the plan to eligible employees.

4. Employees provide reasonable substantiation that

payments or reimbursements are for qualifying expenses.

1. The employee was a 5% owner at any time during the

year or the preceding year.

For this exclusion, a highly compensated employee for

2026 is an employee who meets either of the following

tests.

2. The employee received more than $160,000 in pay for

the preceding year.

1. The employee was a 5% owner at any time during the

year or the preceding year.

You can choose to ignore test (2) if the employee

wasn’t also in the top 20% of employees when ranked by

pay for the preceding year.

An award isn’t a qualified plan award if the average cost

of all the employee achievement awards given during the

tax year (that would be qualified plan awards except for

this limit) is more than $400. To figure this average cost,

ignore awards of nominal value.

Deduct achievement awards, up to the maximum

amounts listed earlier, as a nonwage business expense on

your return or business schedule.

Caution: To determine for 2026 whether an achievement award is a “qualified plan award” under the deduction rules described under Deduction limit above, treat any

employee who received more than $160,000 in pay for

2025 as a highly compensated employee.

If the cost of awards given to an employee is more than

your allowable deduction, include in the employee’s wages the larger of the following amounts.

2. The employee received more than $160,000 in pay for

the preceding year.

• The part of the cost that is more than your allowable

deduction (up to the value of the awards).

• The amount by which the value of the awards exceeds

your allowable deduction.

Exclude the remaining value of the awards from the employee’s wages.

Adoption Assistance

An adoption assistance program is a separate written plan

of an employer that meets all of the following requirements.

1. It benefits employees who qualify under rules set up

by you, which don’t favor highly compensated employees or their dependents. To determine whether

your plan meets this test, don’t consider employees

excluded from your plan who are covered by a collective bargaining agreement if there is evidence that

adoption assistance was a subject of good-faith bargaining.

Publication 15-B (2026)

You can choose to ignore test (2) if the employee wasn’t

also in the top 20% of employees when ranked by pay for

the preceding year.

You must exclude all payments or reimbursements you

make under an adoption assistance program for an employee’s qualified adoption expenses from the employee’s

wages subject to federal income tax withholding. However, you can’t exclude these payments from wages subject to social security, Medicare, and FUTA taxes.

You must report all qualifying adoption expenses you

paid or reimbursed under your adoption assistance program for each employee for the year in box 12 of the employee’s Form W-2. Report all amounts including those in

excess of the $17,670 exclusion for 2026. Use code T to

identify this amount.

Exception for S corporation shareholders. For this

exclusion, don’t treat a 2% shareholder of an S corporation as an employee of the corporation. A 2% shareholder

is someone who directly or indirectly owns (for any day

during the tax year) more than 2% of the corporation’s

stock or stock with more than 2% of the voting power.

Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but don’t treat the benefit as a reduction in distributions to the 2% shareholder.

For more information, see Revenue Ruling 91-26, 1991-1

C.B. 184.

More information. For more information on adoption

benefits, see Notice 97-9, which is on page 35 of Internal

Revenue Bulletin 1997-2 at IRS.gov/pub/irs-irbs/

irb97-02.pdf. Advise your employees to see the Instructions for Form 8839.

Athletic Facilities

You can exclude the value of an employee’s use of an

on-premises gym or other athletic facility you operate from

an employee’s wages if substantially all use of the facility

during the calendar year is by your employees, their spouses, and their dependent children. For this purpose, an

employee’s dependent child is a child or stepchild who is

the employee’s dependent or who, if both parents are deceased, hasn’t reached the age of 25. The exclusion

doesn’t apply to any athletic facility if access to the facility

is made available to the general public through the sale of

memberships, the rental of the facility, or a similar arrangement.

On-premises facility. The athletic facility must be located on premises you own or lease and must be operated

by you. It doesn’t have to be located on your business

premises. However, the exclusion doesn’t apply to an athletic facility that is a facility for residential use, such as athletic facilities that are part of a resort.

Employee. For this exclusion, treat the following individuals as employees.

• A current employee.

• A former employee who retired or left on disability.

• A surviving spouse of an individual who died while an

employee.

• A surviving spouse of a former employee who retired

or left on disability.

• A leased employee who has provided services to you

on a substantially full-time basis for at least a year if

the services are performed under your primary direction or control.

• A partner who performs services for a partnership.

De Minimis (Minimal) Benefits

You can exclude the value of a de minimis benefit you provide to an employee from the employee’s wages. A de

minimis benefit is any property or service you provide to

an employee that has so little value (taking into account

how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or

administratively impracticable. Cash and cash equivalent

fringe benefits (for example, gift certificates, gift cards,

and the use of a charge card or credit card), no matter

how little, are never excludable as a de minimis benefit.

However, meal money and local transportation fare, if provided on an occasional basis and because of overtime

work, may be excluded, as discussed later.

Examples of de minimis benefits include the following.

• Personal use of an employer-provided cell phone provided primarily for noncompensatory business purposes. See Employer-Provided Cell Phones, later in this

section, for details.

• Occasional personal use of a company copying ma-

chine if you sufficiently control its use so that at least

85% of its use is for business purposes.

• Holiday or birthday gifts, other than cash, with a low

fair market value (FMV). Also, flowers or fruit or similar

items provided to employees under special

circumstances (for example, on account of illness, a

family crisis, or outstanding performance).

• Group-term life insurance payable on the death of an

employee’s spouse or dependent if the face amount

isn’t more than $2,000.

• Certain meals. See Meals, later in this section, for details.

• Occasional parties or picnics for employees and their

guests.

• Occasional tickets for theater or sporting events.

• Certain transportation fare. See Transportation (Commuting) Benefits, later in this section, for details.

Some examples of benefits that aren’t excludable as de

minimis fringe benefits are season tickets to sporting or

theatrical events; the commuting use of an employer-provided automobile or other vehicle more than 1 day a

month; membership in a private country club or athletic facility, regardless of the frequency with which the employee

uses the facility; and use of employer-owned or -leased facilities (such as an apartment, hunting lodge, boat, etc.)

for a weekend. If a benefit provided to an employee

doesn’t qualify as de minimis (for example, the frequency

exceeds a limit described earlier), then generally the entire benefit must be included in income.

Employee. For this exclusion, treat any recipient of a de

minimis benefit as an employee.

Dependent Care Assistance

This exclusion applies to household and dependent care

services you directly or indirectly pay for or provide to an

employee under a written dependent care assistance program (DCAP) that covers only your employees. The services must be for a qualifying person’s care and must be

provided to allow the employee to work. These requirements are basically the same as the tests the employee

would have to meet to claim the dependent care credit if

the employee paid for the services. For more information,

see Can You Claim the Credit? in Pub. 503.

Employee. For this exclusion, treat the following individuals as employees.

• A current employee.

• A leased employee who has provided services to you

on a substantially full-time basis for at least a year if

the services are performed under your primary direction or control.

• Yourself (if you’re a sole proprietor).

• A partner who performs services for a partnership.

Exclusion from wages. You can exclude the value of

benefits you provide to an employee under a DCAP from

the employee’s wages if you reasonably believe that the

employee can exclude the benefits from gross income.

An employee can generally exclude from gross income

up to $7,500 ($3,750 if married filing separately) of

benefits received under a DCAP each year.

Publication 15-B (2026)

However, the exclusion can’t be more than the smaller

of the earned income of either the employee or employee’s spouse. Special rules apply to determine the earned

income of a spouse who is either a student or not able to

care for themselves. For more information on the earned

income limit, see Pub. 503.

Exception for highly compensated employees.

You can’t exclude dependent care assistance from the wages of a highly compensated employee unless the benefits provided under the program don’t favor highly compensated employees and the program meets the

requirements described in section 129(d) of the Internal

Revenue Code.

For this exclusion, a highly compensated employee for

2026 is an employee who meets either of the following

tests.

1. The employee was a 5% owner at any time during the

year or the preceding year.

2. The employee received more than $160,000 in pay for

the preceding year.

You can choose to ignore test (2) if the employee wasn’t

also in the top 20% of employees when ranked by pay for

the preceding year.

Form W-2. Report the value of all dependent care assistance you provide to an employee under a DCAP in

box 10 of the employee’s Form W-2. Include any amounts

you can’t exclude from the employee’s wages in boxes 1,

3, and 5. Report in box 10 both the nontaxable portion of

assistance (up to $7,500) and any assistance above that

amount that is taxable to the employee.

Example. Oak Co. provides a dependent care assistance FSA to its employees through a cafeteria plan. In

addition, it provides occasional on-site dependent care to

its employees at no cost. Emily, an employee of Oak Co.,

had $7,000 deducted from her pay for the dependent care

FSA. In addition, Emily used the on-site dependent care

several times. The FMV of the on-site care was $700. Emily’s Form W-2 should report $7,700 of dependent care assistance in box 10 ($7,000 FSA plus $700 on-site dependent care). Boxes 1, 3, and 5 should include $200 (the

amount in excess of the nontaxable assistance), and applicable taxes should be withheld on that amount.

Education expenses don’t include the cost of tools or

supplies (other than textbooks) your employee is allowed

to keep at the end of the course. Nor do they include the

cost of lodging, meals, or transportation. Your employee

must be able to provide substantiation to you that the educational assistance provided was used for qualifying education expenses.

Exclusion for employer payments of student loans.

Employer-provided educational assistance benefits include payments made after March 27, 2020, whether paid

to the employee or to a lender, of principal or interest on

any qualified education loan incurred by the employee for

education of the employee. Qualified education loans are

defined in chapter 10 of Pub. 970.

Educational assistance program. An educational assistance program is a separate written plan that provides

educational assistance only to your employees. The program qualifies only if all of the following tests are met.

• The program benefits employees who qualify under

rules set up by you that don’t favor highly compensated employees. To determine whether your program

meets this test, don’t consider employees excluded

from your program who are covered by a collective

bargaining agreement if there is evidence that educational assistance was a subject of good-faith bargaining.

• The program doesn’t provide more than 5% of its ben-

efits during the year for shareholders or owners (or

their spouses or dependents). A shareholder or owner

is someone who owns (on any day of the tax year)

more than 5% of the stock or of the capital or profits

interest of your business.

• The program doesn’t allow employees to choose to receive cash or other benefits that must be included in

gross income instead of educational assistance.

• You give reasonable notice of the program to eligible

employees.

Your program can cover former employees if their employment is the reason for the coverage.

For this exclusion, a highly compensated employee for

2026 is an employee who meets either of the following

tests.

Educational Assistance

1. The employee was a 5% owner at any time during the

year or the preceding year.

This exclusion applies to educational assistance you provide to employees under an educational assistance program. The exclusion also applies to graduate-level courses.

2. The employee received more than $160,000 in pay for

the preceding year.

“Educational assistance” means amounts you pay or incur for your employees’ education expenses. These expenses generally include the cost of books, equipment,

fees, supplies, and tuition. However, these expenses don’t

include the cost of a course or other education involving

sports, games, or hobbies, unless the education:

• Has a reasonable relationship to your business, or

• Is required as part of a degree program.

Publication 15-B (2026)

You can choose to ignore test (2) if the employee wasn’t

also in the top 20% of employees when ranked by pay for

the preceding year.

Employee. For this exclusion, treat the following individuals as employees.

• A current employee.

• A former employee who retired, left on disability, or

was laid off.

• A leased employee who has provided services to you

on a substantially full-time basis for at least a year if

the services are performed under your primary direction or control.

• Yourself (if you’re a sole proprietor).

• A partner who performs services for a partnership.

Exclusion from wages. You can exclude up to $5,250

of educational assistance you provide to an employee under an educational assistance program from the employee’s wages each year.

Assistance over $5,250. If you don’t have an educational assistance plan, or you provide an employee with

assistance exceeding $5,250, you must include the value

of these benefits as wages, unless the benefits are working condition benefits. Working condition benefits may be

excluded from wages. Property or a service provided is a

working condition benefit to the extent that if the employee

paid for it, the amount paid would have been allowable as

a business or depreciation expense. See Working Condition Benefits, later in this section.

Self-employed individuals, shareholders, and owners. While there are no specific income limits for receiving educational assistance benefits, an educational assistance program must satisfy certain requirements under

section 127 of the Internal Revenue Code and Regulations section 1.127-2, including not being discriminatory in

favor of employees who are highly compensated employees. An individual who is self-employed within the meaning of section 401(c)(1) of the Internal Revenue Code may

receive educational assistance. While shareholders and

owners may receive educational assistance, not more

than 5% of the amounts paid or incurred by the employer

for educational assistance during the year may be provided for the class of individuals who are shareholders or

owners (or their spouses or dependents), each of whom

(on any day of the tax year) owns more than 5% of the

stock or of the capital or profits interest in the employer.

If the owners are the only employees, they can’t receive

educational assistance under section 127 of the Internal

Revenue Code because of the 5% benefit limitation described above. The following formula can be used to determine the amount of educational assistance that an

owner/employee can receive. Multiply the total amount of

educational assistance provided to employees other than

the owner/employee by 5.263158% (0.05263158). Then

round down to two decimal places, but not greater than

$5,250.

Example. A company has a single owner/employee

and 19 other employees. If each employee (other than the

owner/employee) claims the educational assistance and

receives the full $5,250, the owner/employee may also receive $5,250. The total amount of educational assistance

provided to employees (other than the owner/employee) is

$5,250 x 19 = $99,750. $99,750 x 0.05263158 =

$5,250.000105 (rounded down to two decimal places is

$5,250.00). If the owner/employee receives $5,250 in educational assistance, then the 5% benefit limitation would

be satisfied. The total amount of educational assistance

provided under the program is $99,750 + $5,250 =

$105,000, and 5% of $105,000 is $5,250.

However, if not every employee receives the full

$5,250, the amount the owner/employee may exclude is

reduced. If only eight of the employees (other than the

owner/employee) receive $5,250, then the total amount of

educational assistance provided to employees (other than

the owner/employee) is 8 x $5,250 = $42,000. $42,000 x

0.05263158 = $2,210.52636 (rounded down to two decimal places is $2,210.52). If the owner/employee receives

$2,210.52 in educational assistance, then the 5% benefit

limitation would be satisfied. The total amount of educational assistance provided under the program is $42,000 +

$2,210.52 = $44,210.52, and 5% of $44,210.52 is approximately $2,210.52.

Employee Discounts

This exclusion applies to a price reduction you give your

employee on property or services you offer to customers

in the ordinary course of the line of business in which the

employee performs substantial services. It applies

whether the property or service is provided at no charge

(in which case only part of the discount may be excludable

as a qualified employee discount) or at a reduced price. It

also applies if the benefit is provided through a partial or

total cash rebate.

The benefit may be provided either directly by you or indirectly through a third party. For example, an employee of

an appliance manufacturer may receive a qualified employee discount on the manufacturer’s appliances purchased at a retail store that offers the appliances for sale

to customers.

Employee discounts don’t apply to discounts on real

property or discounts on personal property of a kind commonly held for investment (such as stocks or bonds). They

also don’t include discounts on a line of business of the

employer for which the employee doesn’t provide substantial services, or discounts on property or services of a kind

that aren’t offered for sale to customers. Therefore, discounts on items sold in an employee store that aren’t sold

to customers aren’t excluded from employee income.

Also, employee discounts provided by another employer

through a reciprocal agreement aren’t excluded.

Employee. For this exclusion, treat the following individuals as employees.

• A current employee.

• A former employee who retired or left on disability.

• A surviving spouse of an individual who died while an

employee.

• A surviving spouse of an employee who retired or left

on disability.

• A leased employee who has provided services to you

on a substantially full-time basis for at least a year if

the services are performed under your primary direction or control.

• A partner who performs services for a partnership.

Publication 15-B (2026)

Treat discounts you provide to the spouse or dependent

child of an employee as provided to the employee. For this

fringe benefit, dependent child is a child or stepchild who

is the employee’s dependent or who, if both parents are

deceased, hasn’t reached the age of 25. Treat a child of

divorced parents as a dependent of both parents.

Exclusion from wages. You can generally exclude the

value of an employee discount you provide an employee

from the employee’s wages, up to the following limits.

• For a discount on services, 20% of the price you

charge nonemployee customers for the service.

• For a discount on merchandise or other property, your

gross profit percentage times the price you charge

nonemployee customers for the property.

Generally, determine your gross profit percentage in the

line of business based on all property you offer to customers (including employee customers) and your experience

during the tax year immediately before the tax year in

which the discount is available. To figure your gross profit

percentage, subtract the total cost of the property from the

total sales price of the property and divide the result by the

total sales price of the property. Employers that are in their

first year of existence may estimate their gross profit percentage based on its mark-up from cost or refer to an appropriate industry average. If substantial changes in an

employer’s business indicate at any time that it is inappropriate for the prior year’s gross profit percentage to be

used for the current year, the employer must, within a reasonable period, redetermine the gross profit percentage

for the remaining portion of the current year as if such portion of the year were the first year of the employer’s existence.

Exception for highly compensated employees.

You can’t exclude from the wages of a highly compensated employee any part of the value of a discount that isn’t

available on the same terms to one of the following

groups.

• All of your employees.

• A group of employees defined under a reasonable

classification you set up that doesn’t favor highly compensated employees.

For this exclusion, a highly compensated employee for

2026 is an employee who meets either of the following

tests.

1. The employee was a 5% owner at any time during the

year or the preceding year.

2. The employee received more than $160,000 in pay for

the preceding year.

You can choose to ignore test (2) if the employee wasn’t

also in the top 20% of employees when ranked by pay for

the preceding year.

Employee Stock Options

There are three kinds of stock options—incentive stock

options, employee stock purchase plan options, and nonstatutory (nonqualified) stock options.

Wages for social security, Medicare, and FUTA taxes

don’t include remuneration resulting from the exercise of

an incentive stock option or an employee stock purchase

plan option, or from any disposition of stock acquired by

exercising such an option.

Additionally, federal income tax withholding isn’t required on the income resulting from a disqualifying disposition of stock acquired by the exercise of an incentive

stock option or an employee stock purchase plan option,

or on income equal to the discount portion of stock acquired by the exercise of an employee stock purchase

plan option resulting from any qualifying disposition of the

stock. The employer must report as income in box 1 of

Form W-2 (a) the discount portion of stock acquired by the

exercise of an employee stock purchase plan option upon

a qualifying disposition of the stock, and (b) the spread

(between the exercise price and the FMV of the stock at

the time of exercise) upon a disqualifying disposition of

stock acquired by the exercise of an incentive stock option

or an employee stock purchase plan option.

An employer must report the excess of the FMV of

stock received upon exercise of a nonstatutory stock option over the amount paid for the stock option on Form

W-2 in boxes 1, 3 (up to the social security wage base

limit), and 5, and in box 12 using code V. See Regulations

section 1.83-7.

An employee who transfers their interest in nonstatutory stock options to the employee’s former spouse incident to a divorce isn’t required to include an amount in

gross income upon the transfer. The former spouse, rather

than the employee, is required to include an amount in

gross income when the former spouse exercises the stock

options. See Revenue Ruling 2002-22 and Revenue Ruling 2004-60 for details. You can find Revenue Ruling

2002-22 on page 849 of Internal Revenue Bulletin

2002-19 at IRS.gov/pub/irs-irbs/irb02-19.pdf. Revenue

Ruling 2004-60, 2004-24 I.R.B. 1051, is available at

IRS.gov/irb/2004-24_IRB#RR-2004-60.

Employee stock options aren’t subject to Railroad

Retirement Tax. In Wisconsin Central Ltd. v. United

States, 138 S. Ct. 2067, the U. S. Supreme Court ruled

that employee stock options (whether statutory or nonstatutory) aren’t “money remuneration” subject to the RRTA.

If you’re a railroad employer, don’t withhold Tier 1 and Tier

2 taxes on compensation from railroad employees covered by the RRTA exercising such options. You must still

withhold federal income tax on taxable compensation from

railroad employees exercising their options.

Section 83(i) election to defer income on equity

grants. Under section 83(i) of the Internal Revenue

Code, qualified employees who are granted stock options

or restricted stock units (RSUs) and who later receive

stock upon exercise of the option or upon settlement of

Publication 15-B (2026)

the RSU (qualified stock) may elect to defer the recognition of income for up to 5 years if the corporation’s stock

wasn’t readily tradable on an established securities market during any prior calendar year, if the corporation has a

written plan under which not less than 80% of all U.S. employees are granted options or RSUs with the same rights

and privileges to receive qualified stock, and if certain

other requirements are met. An election under section

83(i) applies only for federal income tax purposes. The

election has no effect on the application of social security,

Medicare, and FUTA taxes. For federal income tax purposes, the employer must withhold federal income tax at

37% in the tax year that the amount deferred is included in

the employee’s income. If a section 83(i) election is made

for an option exercise, that option will not be considered

an incentive stock option or an option granted pursuant to

an employee stock purchase plan. These rules apply to

stock attributable to options exercised, or RSUs settled,

after December 31, 2017. For more information, see section 83(i); and Notice 2018-97, 2018-52 I.R.B. 1062, available at IRS.gov/irb/2018-52_IRB#NOT-2018-97.

Reporting requirements. For each employee, you

must report in box 12 of Form W-2 using code GG the

amount included in income in the calendar year from

qualified equity grants under section 83(i). You must also

report in box 12 using code HH the total amount of income

deferred under section 83(i) determined as of the close of

the calendar year.

More information. For more information about employee stock options, see sections 83, 421, 422, and 423

of the Internal Revenue Code and their related regulations.

Employer-Provided Cell Phones

• Need to speak with clients located in other time zones

at times outside the employee’s normal workday.

Cell phones provided to promote goodwill, boost

morale, or attract prospective employees. You can’t

exclude from an employee’s wages the value of a cell

phone provided to promote goodwill of an employee, to attract a prospective employee, or as a means of providing

additional compensation to an employee.

Additional information. For additional information on

the tax treatment of employer-provided cell phones, see

Notice 2011-72, 2011-38 I.R.B. 407, available at

IRS.gov/irb/2011-38_IRB#NOT-2011-72.

Group-Term Life Insurance Coverage

This exclusion applies to life insurance coverage that

meets all the following conditions.

• It provides a general death benefit that isn’t included in

income.

• You provide it to a group of employees. See The

10-employee rule, later.

• It provides an amount of insurance to each employee

based on a formula that prevents individual selection.

This formula must use factors such as the employee’s

age, years of service, pay, or position.

• You provide it under a policy you directly or indirectly

carry. Even if you don’t pay any of the policy’s cost,

you’re considered to carry it if you arrange for payment

of its cost by your employees and charge at least one

employee less than, and at least one other employee

more than, the cost of their insurance. Determine the

cost of the insurance, for this purpose, as explained

under Coverage over the limit, later.

The value of the business use of an employer-provided

cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee’s income

as a working condition fringe benefit. Personal use of an

employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an

employee’s income as a de minimis fringe benefit. The

term “cell phone” also includes other similar telecommunications equipment. For the rules relating to these types of

benefits, see De Minimis (Minimal) Benefits, earlier in this

section; and Working Condition Benefits, later in this section.

Group-term life insurance doesn’t include the following

insurance.

Noncompensatory business purposes. You provide a

cell phone primarily for noncompensatory business purposes if there are substantial business reasons for providing

the cell phone. Examples of substantial business reasons

include the employer’s:

manent benefit (an economic value that extends beyond 1 policy year, such as paid-up or cash-surrender

value), unless certain requirements are met. See Regulations section 1.79-1 for details.

• Need to contact the employee at all times for work-related emergencies,

• Requirement that the employee be available to speak

with clients at times when the employee is away from

the office, and

• Insurance that doesn’t provide general death benefits,

such as travel insurance or a policy providing only accidental death benefits.

• Life insurance on the life of your employee’s spouse or

dependent. However, you may be able to exclude the

cost of this insurance from the employee’s wages as a

de minimis benefit. See De Minimis (Minimal) Benefits, earlier in this section.

• Insurance provided under a policy that provides a per-

Employee. For this exclusion, treat the following individuals as employees.

1. A current common-law employee.

2. A full-time life insurance agent who is a current statutory employee.

Publication 15-B (2026)

3. An individual who was formerly your employee under

(1) or (2).

4. A leased employee who has provided services to you

on a substantially full-time basis for at least a year if

the services are performed under your primary direction or control.

Exception for S corporation shareholders. Don’t

treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder is someone who directly or indirectly owns (for any

day during the tax year) more than 2% of the corporation’s

stock or stock with more than 2% of the voting power.

Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but don’t treat the benefit as a reduction in distributions to the 2% shareholder.

For more information, see Revenue Ruling 91-26, 1991-1

C.B. 184.

The 10-employee rule. Generally, life insurance isn’t

group-term life insurance unless you provide it at some

time during the calendar year to at least 10 full-time employees.

For this rule and the first exception discussed next,

count employees who choose not to receive the insurance

as if they do receive insurance, unless, to receive it, they

must contribute to the cost of benefits other than the

group-term life insurance. For example, count an employee who could receive insurance by paying part of the

cost, even if that employee chooses not to receive it. However, don’t count an employee who chooses not to receive

insurance if the employee must pay part or all of the cost

of permanent benefits in order to obtain group-term life insurance. A permanent benefit is an economic value extending beyond 1 policy year (for example, a paid-up or

cash-surrender value) that is provided under a life insurance policy.

Exceptions. Even if you don’t meet the 10-employee

rule, two exceptions allow you to treat insurance as

group-term life insurance.

Under the first exception, you don’t have to meet the

10-employee rule if all the following conditions are met.

1. If evidence that the employee is insurable is required,

it is limited to a medical questionnaire (completed by

the employee) that doesn’t require a physical.

2. You provide the insurance to all your full-time employees or, if the insurer requires the evidence mentioned

in (1), to all full-time employees who provide evidence

the insurer accepts.

Under the second exception, you don’t have to meet

the 10-employee rule if all the following conditions are

met.

• You provide the insurance under a common plan covering your employees and the employees of at least

one other employer who isn’t related to you.

• The insurance is restricted to, but mandatory for, all

your employees who belong to, or are represented by,

an organization (such as a union) that carries on substantial activities besides obtaining insurance.

• Evidence of whether an employee is insurable doesn’t

affect an employee’s eligibility for insurance or the

amount of insurance that employee gets.

To apply either exception, don’t consider employees

who were denied insurance for any of the following reasons.

• They were 65 or older.

• They customarily work 20 hours or less a week or 5

months or less in a calendar year.

• They haven’t been employed for the waiting period

given in the policy. This waiting period can’t be more

than 6 months.

Exclusion from wages. You can generally exclude the

cost of up to $50,000 of group-term life insurance coverage from the wages of an insured employee. You can exclude the same amount from the employee’s wages when

figuring social security and Medicare taxes. In addition,

you don’t have to withhold federal income tax or pay FUTA

tax on any group-term life insurance you provide to an employee.

Coverage over the limit. You must include in your

employee’s wages the cost of group-term life insurance

beyond $50,000 worth of coverage, reduced by the

amount the employee paid toward the insurance. Report it

as wages in boxes 1, 3, and 5 of the employee’s Form

W-2. Also, show it in box 12 with code C. The amount is

subject to social security and Medicare taxes, and you

may, at your option, withhold federal income tax.

Figure the monthly cost of the insurance to include in

the employee’s wages by multiplying the number of thousands of dollars of all insurance coverage over $50,000

(figured to the nearest $100) by the cost shown in Table 2-2. For all coverage provided within the calendar year,

use the employee’s age on the last day of the employee’s

tax year. You must prorate the cost from the table if less

than a full month of coverage is involved.

3. You figure the coverage based on either a uniform

percentage of pay or the insurer’s coverage brackets

that meet certain requirements. See Regulations section 1.79-1 for details.

Publication 15-B (2026)

Table 2-2. Cost Per $1,000 of Protection for

1 Month

Age

Cost

Under 25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.05

25 through 29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.06

30 through 34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.08

35 through 39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.09

40 through 44 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.10

45 through 49 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.15

50 through 54 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.23

55 through 59 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.43

60 through 64 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.66

65 through 69 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.27

70 and older . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.06

You figure the total cost to include in the employee’s

wages by multiplying the monthly cost by the number of

months’ coverage at that cost.

Example.

Tom’s employer provides Tom with

group-term life insurance coverage of $200,000. Tom is 45

years old, isn’t a key employee, and pays $100 per year

toward the cost of the insurance. Tom’s employer must include $170 in Tom’s wages. The $200,000 of insurance

coverage is reduced by $50,000. The yearly cost of

$150,000 of coverage is $270 ($0.15 x 150 x 12), and is

reduced by the $100 Tom pays for the insurance. The employer includes $170 in boxes 1, 3, and 5 of Tom’s Form

W-2. The employer also enters $170 in box 12 with code

Coverage for dependents. Group-term life insurance

coverage paid by the employer for the spouse or dependents of an employee may be excludable from income as a

de minimis fringe benefit if the face amount isn’t more than

$2,000. If the face amount is greater than $2,000, the dependent coverage may be excludable from income as a

de minimis fringe benefit if the excess (if any) of the cost of

insurance over the amount the employee paid for it on an

after-tax basis is so small that accounting for it is unreasonable or administratively impracticable.

Former employees. When group-term life insurance

over $50,000 is provided to an employee (including retirees) after their termination, the employee share of social

security and Medicare taxes on that period of coverage is

paid by the former employee with their tax return and isn’t

collected by the employer. You’re not required to collect

those taxes. You must, however, pay the employer share

of social security and Medicare taxes. Use Table 2-2 to

determine the amount of additional income that is subject

to social security and Medicare taxes for coverage provided after separation from service. Report the uncollected

amounts separately in box 12 of Form W-2 using codes M

and N. See the General Instructions for Forms W-2 and

W-3 and the instructions for your employment tax return.

Exception for key employees. Generally, if your

group-term life insurance plan favors key employees as to

participation or benefits, you must include the entire cost

of the insurance in your key employees’ wages. This exception generally doesn’t apply to church plans. When figuring social security and Medicare taxes, you must also

include the entire cost in the employees’ wages. Include

the cost in boxes 1, 3, and 5 of Form W-2. However, you

don’t have to withhold federal income tax or pay FUTA tax

on the cost of any group-term life insurance you provide to

an employee.

For this purpose, the cost of the insurance is the

greater of the following amounts.

• The premiums you pay for the employee’s insurance.

See Regulations section 1.79-4T(Q&A 6) for more information.

• The cost you figure using Table 2-2.

For this exclusion, a key employee during 2026 is an

employee or former employee who is one of the following

individuals. See section 416(i) of the Internal Revenue

Code for more information.

1. An officer having annual pay of more than $235,000.

2. An individual who for 2026 is either of the following.

a. A 5% owner of your business.

b. A 1% owner of your business whose annual pay is

more than $150,000.

A former employee who was a key employee upon retirement or separation from service is also a key employee.

Your plan doesn’t favor key employees as to participation if at least one of the following is true.

• It benefits at least 70% of your employees.

• At least 85% of the participating employees aren’t key

employees.

• It benefits employees who qualify under a set of rules

you set up that don’t favor key employees.

Your plan meets this participation test if it is part of a

cafeteria plan (discussed earlier in section 1) and it meets

the participation test for those plans.

When applying this test, don’t consider employees

who:

• Have not completed 3 years of service;

• Are part time or seasonal;

• Are nonresident aliens who receive no U.S. source

earned income from you; or

• Aren’t included in the plan but are in a unit of employ-

ees covered by a collective bargaining agreement, if

the benefits provided under the plan were the subject

of good-faith bargaining between you and employee

representatives.

Your plan doesn’t favor key employees as to benefits if

all benefits available to participating key employees are

also available to all other participating employees. Your

plan doesn’t favor key employees just because the

amount of insurance you provide to your employees is uniformly related to their pay.

S corporation shareholders. Because you can’t

treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the cost of all

group-term life insurance coverage you provide the 2%

Publication 15-B (2026)

shareholder in their wages. When figuring social security

and Medicare taxes, you must also include the cost of this

coverage in the 2% shareholder’s wages. Include the cost

in boxes 1, 3, and 5 of Form W-2. However, you don’t have

to withhold federal income tax or pay FUTA tax on the cost

of any group-term life insurance coverage you provide to

the 2% shareholder.

Health Savings Accounts (HSAs)

An HSA is an account owned by a qualified individual who

is generally your employee or former employee. Any contributions that you make to an HSA become the employee’s property and can’t be withdrawn by you. Contributions to the account are used to pay current or future

medical expenses of the account owner, their spouse, and

any qualified dependent. The medical expenses must not

be reimbursable by insurance or other sources and their

payment from HSA funds (distribution) won’t give rise to a

medical expense deduction on the individual’s federal income tax return.

Eligibility. A qualified individual must be covered by a

High Deductible Health Plan (HDHP) and not be covered

by other health insurance except for permitted insurance

listed under section 223(c)(3) or insurance for accidents,

disability, dental care, vision care, long-term care, or telehealth and other remote care. For calendar year 2026, a

qualifying HDHP must have a deductible of at least $1,700

for self-only coverage or $3,400 for family coverage and

must limit annual out-of-pocket expenses of the beneficiary to $8,500 for self-only coverage and $17,000 for

family coverage.

There are no income limits that restrict an individual’s

eligibility to contribute to an HSA nor is there a requirement that the account owner have earned income to make

a contribution.

Exceptions. An individual isn’t a qualified individual if

they can be claimed as a dependent on another person’s

tax return. Also, an employee’s participation in a health

FSA or HRA generally disqualifies the individual (and employer) from making contributions to their HSA. However,

an individual may qualify to participate in an HSA if they

are participating in only a limited-purpose FSA or HRA or

a post-deductible FSA. For more information, see Other

employee health plans in Pub. 969.

Employer contributions. Up to specified dollar limits,

cash contributions to the HSA of a qualified individual (determined monthly) are exempt from federal income tax

withholding, social security tax, Medicare tax, and FUTA

tax if you reasonably believe that the employee can exclude the benefits from gross income. For 2026, you can

contribute up to $4,400 for self-only coverage under an

HDHP or $8,750 for family coverage under an HDHP to a

qualified individual’s HSA.

The contribution amounts listed above are increased by

$1,000 for a qualified individual who is age 55 or older at

any time during the year. For two qualified individuals who

are married to each other and who are each age 55 or

older at any time during the year, each spouse’s

Publication 15-B (2026)

contribution limit is increased by $1,000, provided each

spouse has a separate HSA. No contributions can be

made to an individual’s HSA after they become enrolled in

Medicare Part A or Part B.

Nondiscrimination rules. Your contribution amount to

an employee’s HSA must be comparable for all employees

who have comparable coverage during the same period.

Otherwise, there will be an excise tax equal to 35% of the

amount you contributed to all employees’ HSAs.

For guidance on employer comparable contributions to

HSAs under section 4980G of the Internal Revenue Code

in instances where an employee hasn’t established an

HSA by December 31 and in instances where an employer accelerates contributions for the calendar year for

employees who have incurred qualified medical expenses,

see Regulations section 54.4980G-4.

Exception. The Tax Relief and Health Care Act of

2006 allows employers to make larger HSA contributions

for a non-highly compensated employee than for a highly

compensated employee. A highly compensated employee

for 2026 is an employee who meets either of the following

tests.

1. The employee was a 5% owner at any time during the

year or the preceding year.

2. The employee received more than $160,000 in pay for

the preceding year.

You can choose to ignore test (2) if the employee wasn’t

also in the top 20% of employees when ranked by pay for

the preceding year.

Partnerships and S corporations. Partners and 2%

shareholders of an S corporation aren’t eligible for salary

reduction (pre-tax) contributions to an HSA. Employer

contributions to the HSA of a bona fide partner or 2%

shareholder are treated as distributions or guaranteed

payments, as determined by the facts and circumstances.

For more information, see Notice 2005-8, 2005-4 I.R.B.

368, available at IRS.gov/irb/2005-04_IRB#NOT-2005-8.

Cafeteria plans. You may contribute to an employee’s

HSA using a cafeteria plan and your contributions aren’t

subject to the statutory comparability rules. However, cafeteria plan nondiscrimination rules still apply. For example,

contributions under a cafeteria plan to employee HSAs

can’t be greater for higher-paid employees than they are

for lower-paid employees. Contributions that favor

lower-paid employees aren’t prohibited.

Reporting requirements. You must report your contributions to an employee’s HSA in box 12 of Form W-2 using code W. The trustee or custodian of the HSA, generally a bank or insurance company, reports distributions

from the HSA using Form 1099-SA.

More information. For more information about HSAs,

see Pub. 969.

Lodging on Your Business Premises

You can exclude the value of lodging you furnish to an employee from the employee’s wages if it meets the following

tests.

• It is furnished on your business premises.

• It is furnished for your convenience.

• The employee must accept it as a condition of employment.

Different tests may apply to lodging furnished by educational institutions. See section 119(d) of the Internal Revenue Code for details.

If you allow your employee to choose to receive additional pay instead of lodging, then the lodging, if chosen,

isn’t excluded. The exclusion also doesn’t apply to cash

allowances for lodging.

On your business premises. For this exclusion, your

business premises is generally your employee’s place of

work. For example, if you’re a household employer, then

lodging furnished in your home to a household employee

would be considered lodging furnished on your business

premises. For special rules that apply to lodging furnished

in a camp located in a foreign country, see section 119(c)

of the Internal Revenue Code and its regulations.

For your convenience. Whether or not you furnish lodging for your convenience as an employer depends on all

the facts and circumstances. You furnish the lodging to

your employee for your convenience if you do this for a

substantial business reason other than to provide the employee with additional pay. This is true even if a law or an

employment contract provides that the lodging is furnished as pay. However, a written statement that the lodging is furnished for your convenience isn’t sufficient.

Condition of employment. Lodging meets this test if

you require your employees to accept the lodging because they need to live on your business premises to be

able to properly perform their duties. Examples include

employees who must be available at all times and employees who couldn’t perform their required duties without being furnished the lodging.

It doesn’t matter whether you must furnish the lodging

as pay under the terms of an employment contract or a

law fixing the terms of employment.

Example of qualifying lodging. You employ Sam at

a construction project at a remote job site in Alaska. Due

to the inaccessibility of facilities for the employees who are

working at the job site to obtain lodging and the prevailing

weather conditions, you furnish lodging to your employees

at the construction site in order to carry on the construction project. You require that your employees accept the

lodging as a condition of their employment. You may exclude the lodging that you provide from Sam’s wages. Additionally, because sufficient eating facilities aren’t available near your place of employment, you may also exclude

meals you provide to Sam from his wages, as discussed in

Proper meals not otherwise available under Meals on Your

Business Premises, later in this section.

Example of nonqualifying lodging. A hospital gives

Joan, an employee of the hospital, the choice of living at

the hospital free of charge or living elsewhere and receiving a cash allowance in addition to Joan’s regular salary. If

Joan chooses to live at the hospital, the hospital can’t exclude the value of the lodging from her wages because

she isn’t required to live at the hospital to properly perform

the duties of her employment.

S corporation shareholders. For this exclusion, don’t

treat a 2% shareholder of an S corporation as an employee of the corporation. A 2% shareholder is someone

who directly or indirectly owns (for any day during the tax

year) more than 2% of the corporation’s stock or stock

with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe

benefit purposes, but don’t treat the benefit as a reduction

in distributions to the 2% shareholder. For more information, see Revenue Ruling 91-26, 1991-1 C.B. 184.

Meals

This section discusses the exclusion rules that apply to de

minimis meals and meals on your business premises.

De Minimis Meals

You can exclude any occasional meal you provide to an

employee if it has so little value (taking into account how

frequently you provide meals to your employees) that accounting for it would be unreasonable or administratively

impracticable. The exclusion applies, for example, to the

following items.

• Coffee, doughnuts, or soft drinks.

• Occasional meals or meal money provided to enable

an employee to work overtime. However, the exclusion

doesn’t apply to meal money figured on the basis of

hours worked (for example, $2.00 per hour for each

hour over 8 hours), or meals or meal money provided

on a regular or routine basis.

• Occasional parties or picnics for employees and their

guests.

Employee. For this exclusion, treat any recipient of a de

minimis meal as an employee.

Employer-operated eating facility for employees. The

de minimis meals exclusion also applies to meals you provide at an employer-operated eating facility for employees

if the annual revenue from the facility equals or exceeds

the direct operating costs of the facility. Direct operating

costs include the cost of food and beverages, and labor

costs (including employment taxes) of employees whose

services relating to the facility are performed primarily on

the premises of the eating facility. Therefore, for example,

the labor costs attributable to cooks and waitstaff are included in direct operating costs, but the labor cost attributable to a manager of an eating facility whose services

Publication 15-B (2026)

aren’t primarily performed on the premises of the eating

facility aren’t included in direct operating costs.

For this purpose, your revenue from providing a meal is

considered equal to the facility’s direct operating costs to

provide that meal if its value can be excluded from an employee’s wages, as explained under Meals on Your Business Premises, later. If you provide free or discounted

meals to volunteers at a hospital and you can reasonably

determine the number of meals you provide, then you may

disregard these costs and revenues. If you charge nonemployees a greater amount than employees, then you must

disregard all costs and revenues attributable to these nonemployees.

An employer-operated eating facility for employees is

an eating facility that meets all the following conditions.

• You own or lease the facility.

• You operate the facility. You’re considered to operate

the eating facility if you have a contract with another to

operate it.

• The facility is on or near your business premises.

• You provide meals (food, drinks, and related services)

at the facility during, or immediately before or after, the

employee’s workday.

Exclusion from wages. You can generally exclude the

value of de minimis meals you provide to an employee

from the employee’s wages.

Exception for highly compensated employees.

You can’t exclude from the wages of a highly compensated employee the value of a meal provided at an employer-operated eating facility that isn’t available on the

same terms to one of the following groups.

• All of your employees.

• A group of employees defined under a reasonable

classification you set up that doesn’t favor highly compensated employees.

For this exclusion, a highly compensated employee for

2026 is an employee who meets either of the following

tests.

1. The employee was a 5% owner at any time during the

year or the preceding year.

2. The employee received more than $160,000 in pay for

the preceding year.

You can choose to ignore test (2) if the employee wasn’t

also in the top 20% of employees when ranked by pay for

the preceding year.

Section 13304 of P.L. 115-97 changed the rules for the

deduction of food or beverage expenses that are excludable from employee income as a de minimis fringe benefit.

This provision temporarily allowed a 50% deduction for de

minimis meals for tax years 2018 through 2025. For

amounts incurred or paid after 2025, the employer can no

longer deduct expenses associated with providing food

and beverages to employees through an eating facility that

meets the requirements for de minimis fringe benefits or

for the convenience of the employer. P.L. 119-21 created

Publication 15-B (2026)

specific, limited exceptions for certain industries and for

meals provided by restaurants. For more information, see

section 274(o).

Food or beverage expenses related to employee recreation, such as holiday parties or annual picnics, remain

100% deductible when made primarily for the benefit of

your employees other than employees who are officers,

shareholders or other owners who own a 10% or greater

interest in your business, or other highly compensated

employees. While your business deduction may be limited

or eliminated, the fringe benefit exclusion rules still apply

and the de minimis fringe benefits may be excluded from

your employee’s wages, as discussed earlier. For more information, see Regulations section 1.274-12.

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.

If you allow your employee to choose to receive additional pay instead of meals, then the meals, if chosen,

aren’t excluded. The exclusion also doesn’t apply to cash

allowances for meals.

On your business premises. Generally, for this exclusion, the employee’s place of work is your business premises.

For your convenience. Whether you furnish meals for

your convenience as an employer depends on all the facts

and circumstances. You furnish the meals to your employee for your convenience if you do this for a substantial

business reason other than to provide the employee with

additional pay. This is true even if a law or an employment

contract provides that the meals are furnished as pay.

However, a written statement that the meals are furnished

for your convenience isn’t sufficient.

Meals excluded for all employees if excluded for

more than half. If more than half of your employees who

are furnished meals on your business premises are furnished the meals for your convenience, you can treat all

meals you furnish to employees on your business premises as furnished for your convenience.

Food service employees. Meals you furnish to a restaurant or other food service employee during, or immediately before or after, the employee’s working hours are furnished for your convenience. For example, if a waitstaff

works during the breakfast and lunch periods, you can exclude from their wages the value of the breakfast and

lunch you furnish in your restaurant for each day they

work.

Caution: The temporary 100% deduction for expenses

that were paid or incurred after 2020, and before 2023, for

food or beverage expenses provided by a restaurant has

expired. For amounts incurred or paid after 2025, the

employer can no longer deduct expenses associated with

providing food and beverages to employees through an

eating facility that meets the requirements for de minimis

fringe benefits or for the convenience of the employer. P.L.

119-21 created specific, limited exceptions for certain industries and for meals provided by restaurants. For more

information, see section 274(o). While your business deduction may be limited or eliminated, the fringe benefit exclusion rules still apply, as described under De Minimis

Meals and Meals on Your Business Premises, earlier.

Example. You operate a restaurant business. You furnish your employee, Carol, who is a server working 7 a.m.

to 4 p.m., two meals during each workday. You encourage

but don’t require Carol to have breakfast on the business

premises before starting work. Carol must have lunch on

the premises. Because Carol is a food service employee

and works during the normal breakfast and lunch periods,

you can exclude from her wages the value of her breakfast

and lunch.

If you also allow Carol to have meals on your business

premises without charge on Carol’s days off, you can’t exclude the value of those meals from Carol’s wages.

Employees available for emergency calls. Meals

you furnish during working hours so an employee will be

available for emergency calls during the meal period are

furnished for your convenience. You must be able to show

these emergency calls have occurred or can reasonably

be expected to occur, and that the calls have resulted, or

will result, in you calling on your employees to perform

their jobs during their meal period.

Example. A hospital maintains a cafeteria on its premises where all of its 230 employees may get meals at no

charge during their working hours. The hospital must have

120 of its employees available for emergencies. Each of

these 120 employees is, at times, called upon to perform

services during the meal period. Although the hospital

doesn’t require these employees to remain on the premises, they rarely leave the hospital during their meal period. Because the hospital furnishes meals on its premises

to its employees so that more than half of them are available for emergency calls during meal periods, the hospital

can exclude the value of these meals from the wages of all

of its employees.

Short meal periods. Meals you furnish during working hours are furnished for your convenience if the nature

of your business (not merely a preference) restricts an employee to a short meal period (such as 30 or 45 minutes)

and the employee can’t be expected to eat elsewhere in

such a short time. For example, meals can qualify for this

treatment if your peak workload occurs during the normal

lunch hour. However, they don’t qualify if the reason for the

short meal period is to allow the employee to leave earlier

in the day.

Example. Frank is a bank teller who works from 9

a.m. to 5 p.m. The bank furnishes Frank’s lunch without

charge in a cafeteria the bank maintains on its premises.

The bank furnishes these meals to Frank to limit his lunch

period to 30 minutes because the bank’s peak workload

occurs during the normal lunch period. If Frank got lunch

elsewhere, it would take him much longer than 30 minutes

and the bank strictly enforces the time limit. The bank can

exclude the value of these meals from Frank’s wages.

Proper meals not otherwise available. Meals you

furnish during working hours are furnished for your convenience if the employee couldn’t otherwise get proper

meals within a reasonable period of time. For example,

meals can qualify for this treatment if there are insufficient

eating facilities near the place of employment. For an example of this, see Example of qualifying lodging, earlier in

this section.

Meals after work hours. Generally, meals furnished

before or after the working hours of an employee aren’t

considered as furnished for your convenience. However,

meals you furnish to an employee immediately after working hours are furnished for your convenience if you would

have furnished them during working hours for a substantial nonpay business reason but, because of the work duties, they weren’t obtained during working hours.

Meals you furnish to promote goodwill, boost morale, or attract prospective employees. Meals you furnish to promote goodwill, boost morale, or attract prospective employees aren’t considered furnished for your

convenience. However, you may be able to exclude their

value, as discussed under De Minimis Meals, earlier.

Meals furnished on nonworkdays or with lodging.

You generally can’t exclude from an employee’s wages the

value of meals you furnish on a day when the employee

isn’t working. However, you can exclude these meals if

they are furnished with lodging that is excluded from the

employee’s wages. See Lodging on Your Business Premises, earlier in this section.

Meals with a charge. The fact that you charge for the

meals and that your employees may accept or decline the

meals isn’t taken into account in determining whether or

not meals are furnished for your convenience.

S corporation shareholders. For this exclusion, don’t

treat a 2% shareholder of an S corporation as an employee of the corporation. A 2% shareholder is someone

who directly or indirectly owns (for any day during the tax

year) more than 2% of the corporation’s stock or stock

with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe

benefit purposes, but don’t treat the benefit as a reduction

in distributions to the 2% shareholder. For more information, see Revenue Ruling 91-26, 1991-1 C.B. 184.

No-Additional-Cost Services

This exclusion applies to a service you provide to an employee if it doesn’t cause you to incur any substantial additional costs. The service must be offered to customers in

the ordinary course of the line of business in which the

employee performs substantial services.

No-additional-cost services are excess capacity services, such as airline, bus, or train tickets; hotel rooms; or

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telephone services provided free, at a reduced price, or

through a cash rebate to employees working in those lines

of business. Services that aren’t eligible for treatment as

no-additional-cost services are non-excess capacity services, such as the facilitation by a stock brokerage firm of

the purchase of stock by employees. These services may,

however, be eligible for a qualified employee discount of

up to 20% of the value of the service provided. See Employee Discounts, earlier.

Substantial additional costs. To determine whether

you incur substantial additional costs to provide a service

to an employee, count any lost revenue as a cost. Don’t

reduce the costs you incur by any amount the employee

pays for the service. You’re considered to incur substantial

additional costs if you or your employees spend a substantial amount of time in providing the service, even if the

time spent would otherwise be idle or if the services are

provided outside normal business hours.

Example. A commercial airline allows its employees

to take personal flights on the airline at no charge and receive reserved seating. Because the employer gives up

potential revenue by allowing the employees to reserve

seats, employees receiving such free flights aren’t eligible

for the no-additional-cost exclusion.

Reciprocal agreements. A no-additional-cost service

provided to your employee by an unrelated employer may

qualify as a no-additional-cost service if all the following

tests are met.

• The service is the same type of service generally provided to customers in both the line of business in

which the employee works and the line of business in

which the service is provided.

• You and the employer providing the service have a

written reciprocal agreement under which a group of

employees of each employer, all of whom perform

substantial services in the same line of business, may

receive no-additional-cost services from the other employer.

• Neither you nor the other employer incurs any sub-

stantial additional cost (including lost revenue) either

in providing the service or because of the written

agreement.

Employee. For this exclusion, treat the following individuals as employees.

1. A current employee.

2. A former employee who retired or left on disability.

3. A surviving spouse of an individual who died while an

employee.

4. A surviving spouse of a former employee who retired

or left on disability.

5. A leased employee who has provided services to you

on a substantially full-time basis for at least a year if

the services are performed under your primary direction or control.

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6. A partner who performs services for a partnership.

Treat services you provide to the spouse or dependent

child of an employee as provided to the employee. For this

fringe benefit, dependent child is a child or stepchild who

is the employee’s dependent or who, if both parents are

deceased, hasn’t reached the age of 25. Treat a child of

divorced parents as a dependent of both parents.

Treat any use of air transportation by the parent of an

employee as use by the employee. This rule doesn’t apply

to use by the parent of a person considered an employee

because of item (3) or (4) above.

Exclusion from wages. You can generally exclude the

value of a no-additional-cost service you provide to an

employee from the employee’s wages.

Exception for highly compensated employees.

You can’t exclude from the wages of a highly compensated employee the value of a no-additional-cost service

that isn’t available on the same terms to one of the following groups.

• All of your employees.

• A group of employees defined under a reasonable

classification you set up that doesn’t favor highly compensated employees.

For this exclusion, a highly compensated employee for

2026 is an employee who meets either of the following

tests.

1. The employee was a 5% owner at any time during the

year or the preceding year.

2. The employee received more than $160,000 in pay for

the preceding year.

You can choose to ignore test (2) if the employee wasn’t

also in the top 20% of employees when ranked by pay for

the preceding year.

Retirement Planning Services

You may exclude from an employee’s wages the value of

any retirement planning advice or information you provide

to your employee or their spouse if you maintain a qualified retirement plan. A qualified retirement plan includes a

plan, contract, pension, or account described in section

219(g)(5) of the Internal Revenue Code. In addition to employer plan advice and information, the services provided

may include general advice and information on retirement.

However, the exclusion doesn’t apply to services for tax

preparation, accounting, legal, or brokerage services. You

can’t exclude from the wages of a highly compensated

employee retirement planning services that aren’t available on the same terms to each member of a group of employees normally provided education and information

about the employer’s qualified retirement plan.

Transportation (Commuting) Benefits

This section discusses exclusion rules that apply to benefits you provide to your employees for their personal

transportation, such as commuting to and from work.

These rules apply to the following transportation benefits.

• De minimis transportation benefits.

• Qualified transportation benefits.

Special rules that apply to demonstrator cars and qualified

nonpersonal use vehicles are discussed under Working

Condition Benefits, later in this section.

De Minimis Transportation Benefits

You can exclude the value of any de minimis transportation benefit you provide to an employee from the employee’s wages. A de minimis transportation benefit is any local transportation benefit you provide to an employee if it

has so little value (taking into account how frequently you

provide transportation to your employees) that accounting

for it would be unreasonable or administratively impracticable. For example, it applies to occasional local transportation fare you give an employee because the employee is

working overtime if the benefit is reasonable and isn’t

based on hours worked. Local transportation fare provided

on a regular or routine basis doesn’t qualify for this exclusion.

A special rule allows you to exclude as a de minimis

benefit public transit passes, tokens, or farecards you provide at a discount to defray your employee’s commuting

costs on the public transit system if the discount doesn’t

exceed $21 in any month. Similarly, you may also provide

a voucher or similar instrument that is exchangeable

solely for tokens, farecards, or other instruments that enable your employee to use the public transit system if the

value of the vouchers and other instruments in any month

doesn’t exceed $21. You may also reimburse your employee to cover the cost of commuting on a public transit

system, provided your employee doesn’t receive more

than $21 in reimbursements for commuting costs in any

month. The reimbursement must be made under a bona

fide reimbursement arrangement, where you establish appropriate procedures for verifying on a periodic basis that

your employee’s use of public transportation for commuting is consistent with the value of the benefit provided.

The exclusion doesn’t apply to the provision of any benefit

to defray public transit expenses incurred for personal

travel other than commuting.

Employee. For this exclusion, treat any recipient of a de

minimis transportation benefit as an employee.

Qualified Transportation Benefits

This exclusion applies to the following benefits.

• A ride in a commuter highway vehicle between the

employee’s home and work place.

• A transit pass.

• Qualified parking.

You may provide an employee with any one or more of

these benefits at the same time.

Qualified transportation benefits can be provided directly by you or through a bona fide reimbursement arrangement. A bona fide reimbursement arrangement requires that the employee incur and substantiate expenses

for qualified transportation benefits before reimbursement.

However, cash reimbursements for transit passes qualify

only if a voucher or a similar item that the employee can

exchange only for a transit pass isn’t readily available for

direct distribution by you to your employee. A voucher is

readily available for direct distribution only if an employer

can obtain it from a voucher provider that doesn’t impose

fare media charges or other restrictions that effectively

prevent the employer from obtaining vouchers. See Regulations section 1.132-9(b)(Q&A 16–19) for more information.

Compensation reduction agreements. A compensation reduction agreement is a way to provide qualified

transportation benefits on a pre-tax basis by offering your

employees a choice between cash compensation and any

qualified transportation benefit. A compensation reduction

arrangement can be used with a bona fide reimbursement

arrangement. For each month, the amount of the compensation reduction can’t exceed the monthly limits for transportation benefits described under Exclusion from wages,

later. For more information about providing qualified transportation fringe benefits under a compensation reduction

agreement, see Regulations section 1.132-9(b)(Q&A 11–

15).

Commuter highway vehicle. A commuter highway vehicle is any highway vehicle that seats at least six adults

(not including the driver). In addition, you must reasonably

expect that at least 80% of the vehicle mileage will be for

transporting employees between their homes and workplace with employees occupying at least one-half the vehicle’s seats (not including the driver’s).

Transit pass. A transit pass is any pass, token, farecard,

voucher, or similar item entitling a person to ride, free of

charge or at a reduced rate, on one of the following.

• Mass transit.

• In a vehicle that seats at least six adults (not including

the driver) if a person in the business of transporting

persons for pay or hire operates it.

Mass transit may be publicly or privately operated and includes bus, rail, or ferry. For guidance on the use of smart

cards and debit cards to provide qualified transportation

fringes, see Revenue Ruling 2014-32, 2014-50 I.R.B. 917,

available at IRS.gov/irb/2014-50_IRB#RR-2014-32.

Qualified parking. Qualified parking is parking you provide to your employees on or near your business premises. It includes parking on or near the location from which

your employees commute to work using mass transit,

commuter highway vehicles, or carpools. It doesn’t include

parking at or near your employee’s home.

Qualified bicycle commuting reimbursement eliminated. Section 11047 of P.L. 115-97 suspended the exclusion of qualified bicycle commuting reimbursements from

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your employee’s income for any tax year beginning after

2017 and before 2026. For tax years beginning after 2025,

P.L. 119-21 permanently eliminates the exclusion of qualified bicycle commuting reimbursements from your employee’s income.

Employee. For this exclusion, treat the following individuals as employees.

• A current employee.

• A leased employee who has provided services to you

on a substantially full-time basis for at least a year if

the services are performed under your primary direction or control.

A self-employed individual isn’t an employee for qualified transportation benefit purposes.

Exception for S corporation shareholders. Don’t

treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder is someone who directly or indirectly owns (for any

day during the tax year) more than 2% of the corporation’s

stock or stock with more than 2% of the voting power.

Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but don’t treat the benefit as a reduction in distributions to the 2% shareholder.

For more information, see Revenue Ruling 91-26, 1991-1

C.B. 184.

Relation to other fringe benefits. You can’t exclude a

qualified transportation benefit you provide to an employee under the de minimis or working condition benefit

rules. However, if you provide a local transportation benefit

other than by transit pass or commuter highway vehicle, or

to a person other than an employee, you may be able to

exclude all or part of the benefit under other fringe benefit

rules (de minimis, working condition, etc.).

Exclusion from wages. You can generally exclude the

value of transportation benefits that you provide to an employee during 2026 from the employee’s wages up to the

following limits.

• $340 per month for combined commuter highway vehicle transportation and transit passes.

• $340 per month for qualified parking.

Benefits more than the limit. If the value of a benefit

for any month is more than its limit, include in the employee’s wages the amount over the limit minus any amount

the employee paid for the benefit. You can’t exclude the

excess from the employee’s wages as a de minimis transportation benefit.

Qualified transportation benefits aren’t deductible.

Sections 274(a)(4) and 274(l) of the Internal Revenue

Code provide that no deduction is allowed for qualified

transportation benefits (whether provided directly by you,

through a bona fide reimbursement arrangement, or

through a compensation reduction agreement) incurred or

paid after 2017. Also, no deduction is allowed for any expense incurred for providing any transportation, or any

Publication 15-B (2026)

payment or reimbursement to your employee, in connection with travel between your employee’s residence and

place of employment, except as necessary for ensuring

the safety of your employee. While you may no longer deduct payments for qualified transportation benefits, the

fringe benefit exclusion rules still apply and the payments

may be excluded from your employee’s wages, as discussed earlier. Although the value of a qualified transportation fringe benefit is relevant in determining the fringe

benefit exclusion and whether the section 274(e)(2) exception for expenses treated as compensation applies,

the deduction that is disallowed relates to the expense of

providing a qualified transportation fringe, not its value.

For more information, see Regulations sections 1.274-13

and 1.274-14.

More information. For more information on qualified

transportation benefits, including van pools, and how to

determine the value of parking, see Regulations section

1.132-9.

Tuition Reduction

An eligible educational institution can exclude the value of

a qualified tuition reduction it provides to an employee

from the employee’s wages.

A tuition reduction for undergraduate education generally qualifies for this exclusion if it is for the education of

one of the following individuals.

1. A current employee.

2. A former employee who retired or left on disability.

3. A surviving spouse of an individual who died while an

employee.

4. A surviving spouse of a former employee who retired

or left on disability.

5. A dependent child or spouse of any individual listed in

(1) through (4) above.

A tuition reduction for graduate education qualifies for

this exclusion only if it is for the education of a graduate

student who performs teaching or research activities for

the eligible educational institution.

For more information on this exclusion, see Qualified

Tuition Reduction under Other Types of Educational Assistance in chapter 1 of Pub. 970.

Working Condition Benefits

This exclusion applies to property and services you provide to an employee so that the employee can perform

their job. It applies to the extent the cost of the property or

services would be allowable as a business expense or depreciation expense deduction to the employee if they had

paid for it. The employee must meet any substantiation requirements that apply to the deduction. Examples of working condition benefits include an employee’s use of a

company car for business, an employer-provided cell

phone provided primarily for noncompensatory business

purposes (discussed earlier), and job-related education

provided to an employee.

This exclusion also applies to a cash payment you provide for an employee’s expenses for a specific or prearranged business activity if such expenses would otherwise be allowable as a business expense or depreciation

expense deduction to the employee. You must require the

employee to verify that the payment is actually used for

those expenses and to return any unused part of the payment.

The exclusion doesn’t apply to the following items.

• A service or property provided under a FSA in which

you agree to provide the employee, over a time period,

a certain level of unspecified noncash benefits with a

predetermined cash value.

• A physical examination program you provide, even if

mandatory.

• Any item to the extent the payment would be allowable

as a deduction to the employee as an expense for a

trade or business other than your trade or business.

For more information, see Regulations section

1.132-5(a)(2).

Employee. For this exclusion, treat the following individuals as employees.

• A current employee.

• A partner who performs services for a partnership.

• A director of your company.

• An independent contractor who performs services for

you.

Vehicle allocation rules. If you provide a car for an employee’s use, the amount you can exclude as a working

condition benefit is the amount that would be allowable as

a deductible business expense if the employee paid for its

use. If the employee uses the car for both business and

personal use, the value of the working condition benefit is

the part determined to be for business use of the vehicle.

See Business use of your car next. Also, see the special

rules for certain demonstrator cars and qualified nonpersonal use vehicles, discussed later.

Business use of your car. If you use your car exclusively in your business, you can deduct car expenses. If

you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. Generally, commuting expenses between your home

and your business location, within the area of your tax

home, are not deductible.

You can deduct actual car expenses, which include depreciation (or lease payments), gas and oil, tires, repairs,

tune-ups, insurance, and registration fees. Or, instead of

figuring the business part of these actual expenses, you

may be able to use the standard mileage rate to figure

your deduction. To find the standard mileage rate for 2026

and prior years, go to IRS.gov/Tax-Professionals/

Standard-Mileage-Rates.

If you are self-employed, you can also deduct the business part of interest on your car loan, state and local personal property tax on the car, parking fees, and tolls,

whether or not you claim the standard mileage rate.

For more information on car expenses and the rules for

using the standard mileage rate, see Pub. 463.

Demonstrator cars. Generally, all of the use of a demonstrator car by your full-time auto salesperson in the sales

area in which your sales office is located qualifies as a

working condition benefit if the use is primarily to facilitate

the services the salesperson provides for you and there

are substantial restrictions on personal use. For more information and the definition of “full-time auto salesperson,”

see Regulations section 1.132-5(o). For optional, simplified methods used to determine if full, partial, or no exclusion of income to the employee for personal use of a demonstrator car applies, see Revenue Procedure 2001-56.

You can find Revenue Procedure 2001-56 on page 590 of

Internal Revenue Bulletin 2001-51 at

IRS.gov/pub/irs-irbs/irb01-51.pdf.

Qualified nonpersonal use vehicles. All of an employee’s use of a qualified nonpersonal use vehicle is a working condition benefit. A qualified nonpersonal use vehicle

is any vehicle the employee isn’t likely to use more than

minimally for personal purposes because of its design.

Qualified nonpersonal use vehicles generally include all of

the following vehicles.

• Clearly marked, through painted insignia or words, police, fire, and public safety vehicles, provided that any

personal use of the vehicle (other than commuting) is

prohibited by the governmental unit.

• Unmarked vehicles used by law enforcement officers if

the use is officially authorized. Any personal use must

be authorized by the employer, and must be related to

law-enforcement functions, such as being able to report directly from home to an emergency situation.

Use of an unmarked vehicle for vacation or recreation

trips can’t qualify as an authorized use.

• An ambulance or hearse used for its specific purpose.

• Any vehicle designed to carry cargo with a loaded

gross vehicle weight over 14,000 pounds.

• Delivery trucks with seating for the driver only, or the

driver plus a folding jump seat.

• A passenger bus with a capacity of at least 20 pas-

sengers used for its specific purpose and school

buses. The working condition benefit is available only

for the driver, not for any passengers.

• Tractors and other special-purpose farm vehicles.

• Bucket trucks, cement mixers, combines, cranes and

derricks, dump trucks (including garbage trucks), flatbed trucks, forklifts, qualified moving vans, qualified

specialized utility repair trucks, and refrigerated trucks.

See Regulations section 1.274-5(k) for the definitions of

“qualified moving van” and “qualified specialized utility repair truck.”

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Pickup trucks. A pickup truck with a loaded gross vehicle weight of 14,000 pounds or less is a qualified nonpersonal use vehicle if it has been specially modified so it

isn’t likely to be used more than minimally for personal

purposes. For example, a pickup truck qualifies if it is

clearly marked with permanently affixed decals, special

painting, or other advertising associated with your trade,

business, or function and meets either of the following requirements.

1. It is equipped with at least one of the following items.

a. A hydraulic lift gate.

b. Permanent tanks or drums.

c. Permanent side boards or panels that materially

raise the level of the sides of the truck bed.

d. Other heavy equipment (such as an electric generator, welder, boom, or crane used to tow automobiles and other vehicles).

2. It is used primarily to transport a particular type of

load (other than over the public highways) in a construction, manufacturing, processing, farming, mining,

drilling, timbering, or other similar operation for which

it was specially designed or significantly modified.

Vans. A van with a loaded gross vehicle weight of

14,000 pounds or less is a qualified nonpersonal use vehicle if it has been specially modified so it isn’t likely to be

used more than minimally for personal purposes. For example, a van qualifies if it is clearly marked with permanently affixed decals, special painting, or other advertising

associated with your trade, business, or function and has

a seat for the driver only (or the driver and one other person) and either of the following items.

• Permanent shelving that fills most of the cargo area.

• An open cargo area and the van always carries merchandise, material, or equipment used in your trade,

business, or function.

Education. Certain job-related education you provide to

an employee may qualify for exclusion as a working condition benefit. To qualify, the education must meet the same

requirements that would apply for determining whether the

employee could deduct the expenses had the employee

paid the expenses. Degree programs as a whole don’t

necessarily qualify as a working condition benefit. Each

course in the program must be evaluated individually for

qualification as a working condition benefit. The education

must meet at least one of the following tests.

• The education is required by the employer or by law

for the employee to keep their present salary, status,

or job. The required education must serve a bona fide

business purpose of the employer.

• The education maintains or improves skills needed in

the job.

• Is part of a program of study that will qualify the employee for a new trade or business.

Outplacement services. An employee’s use of outplacement services qualifies as a working condition benefit if you provide the services to the employee on the basis

of need, you get a substantial business benefit from the

services distinct from the benefit you would get from the

payment of additional wages, and the employee is seeking new employment in the same kind of trade or business

in which the employee is presently working. Substantial

business benefits include promoting a positive business

image, maintaining employee morale, and avoiding

wrongful termination suits.

Outplacement services don’t qualify as a working condition benefit if the employee can choose to receive cash

or taxable benefits in place of the services. If you maintain

a severance plan and permit employees to get outplacement services with reduced severance pay, include in the

employee’s wages the difference between the unreduced

severance and the reduced severance payments.

Product testing. The FMV of the use of consumer

goods, which are manufactured for sale to nonemployees,

for product testing and evaluation by your employee outside your workplace, qualifies as a working condition benefit if all of the following conditions are met.

• Consumer testing and evaluation of the product is an

ordinary and necessary business expense for you.

• Business reasons necessitate that the testing and

evaluation must be performed off your business premises. For example, the testing and evaluation can’t be

carried out adequately in your office or in laboratory

testing facilities.

• You provide the product to your employee for purposes of testing and evaluation.

• You provide the product to your employee for no lon-

ger than necessary to test and evaluate its performance, and (to the extent not finished) the product must

be returned to you at completion of the testing and

evaluation period.

• You impose limitations on your employee’s use of the

product that significantly reduce the value of any personal benefit to your employee. This includes limiting

your employee’s ability to select among different models or varieties of the consumer product, and prohibiting the use of the product by persons other than your

employee.

• Your employee submits detailed reports to you on the

testing and evaluation.

The program won’t qualify if you don’t use and examine

the results of the detailed reports submitted by employees

within a reasonable period of time after expiration of the

testing period. Additionally, existence of one or more of

However, even if the education meets one or both of

the above tests, it isn’t qualifying education if it:

• Is needed to meet the minimum educational require-

ments of the employee’s present trade or business, or

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the following factors may also establish that the program

isn’t a bona fide product-testing program.

• The program is in essence a leasing program under

which employees lease the consumer goods from you

for a fee.

• The nature of the product and other considerations

are insufficient to justify the testing program.

• The expense of the program outweighs the benefits to

be gained from testing and evaluation.

The program must also not be limited to only certain

classes of employees (such as highly compensated employees), unless you can show a business reason for providing the products only to specific employees. For example, an automobile manufacturer may limit providing

automobiles for testing and evaluation to only their design

engineers and supervisory mechanics, as they can properly evaluate the automobiles.

Exclusion from wages. You can generally exclude the

value of a working condition benefit you provide to an employee from the employee’s wages.

Exception for independent contractors who perform services for you. You can’t exclude the use of

consumer goods you provide in a product-testing program

from the compensation you pay to an independent contractor. You can’t exclude the value of parking as a working

condition benefit, but you may be able to exclude it as a

de minimis fringe benefit. Transit passes provided to independent contractors may be excluded as a working condition benefit if they meet the requirements of a working

condition benefit described earlier. However, personal

commuting expenses aren’t deductible as a business expense. Transit passes may also be excluded as a de minimis fringe benefit. For more information on de minimis

transportation benefits, see De Minimis Transportation

Benefits, earlier in this section.

Exception for company directors. You can’t exclude

the value of the use of consumer goods you provide in a

product-testing program from the compensation you pay

to a director.

3. Fringe Benefit Valuation

Rules

This section discusses the rules you must use to determine the value of a fringe benefit you provide to an employee. You must determine the value of any benefit you

can’t exclude under the rules in section 2 or for which the

amount you can exclude is limited. See Including taxable

benefits in pay in section 1.

In most cases, you must use the general valuation rule

to value a fringe benefit. However, you may be able to use

a special valuation rule to determine the value of certain

benefits.

This section doesn’t discuss the special valuation rule

used to value meals provided at an employer-operated

eating facility for employees. For that rule, see Regulations

section 1.61-21(j).

General Valuation Rule

You must use the general valuation rule to determine the

value of most fringe benefits. Under this rule, the value of

a fringe benefit is its FMV.

FMV. The FMV of a fringe benefit is the amount an employee would have to pay a third party in an arm’s-length

transaction to buy or lease the benefit. Determine this

amount on the basis of all the facts and circumstances.

Neither the amount the employee considers to be the

value of the fringe benefit nor the cost you incur to provide

the benefit determines its FMV.

Business aircraft. Personal use of a company aircraft

by an employee or their guests is a taxable fringe benefit.

The term “employee” includes any person performing

services in connection with which the fringe benefit flight

was provided, and may include, for example, a partner, director, or independent contractor. The employee, not the

guest, will be subject to a non-cash fringe benefit inclusion, typically as part of their W-2 wages for an employee,

a guaranteed payment on Schedule K-1 (Form 1065) for a

partner in a partnership, or Form 1099-NEC for any other

nonemployee arrangement.

There are two methods for valuing personal flights on

company aircraft.

1. Fair Charter Value (FCV)—This is the hourly rate that

would be paid to charter a similar piloted aircraft from

an unrelated party.

2. Standard Industry Fare Level (SIFL)—SIFL rates are

calculated using a formula published in Regulations

section 1.61-21(g). SIFL may only be used on an originally filed return. The Department of Transportation

publishes the SIFL rates biannually.

Employer-provided vehicles. In general, the FMV of an

employer-provided vehicle is the amount the employee

would have to pay a third party to lease the same or similar vehicle on the same or comparable terms in the geographic area where the employee uses the vehicle. A

comparable lease term would be the amount of time the

vehicle is available for the employee’s use, such as a

1-year period.

Don’t determine the FMV by multiplying a

cents-per-mile rate times the number of miles driven unless the employee can prove the vehicle could have been

leased on a cents-per-mile basis.

Cents-per-Mile Rule

Under this rule, you determine the value of a vehicle you

provide to an employee for personal use by multiplying the

standard mileage rate by the total miles the employee

drives the vehicle for personal purposes. Personal use is

any use of the vehicle other than use in your trade or business. This amount must be included in the employee’s

Publication 15-B (2026)

wages or reimbursed by the employee. Go to IRS.gov/

Pub15B for the standard mileage rate per mile for 2026.

Consistency requirements.

If you use

cents-per-mile rule, the following requirements apply.

You can use the cents-per-mile rule if either of the following requirements is met.

• You must begin using the cents-per-mile rule on the

• You reasonably expect the vehicle to be regularly used

in your trade or business throughout the calendar year

(or for a shorter period during which you own or lease

it).

• The vehicle meets the mileage test.

Caution: Maximum automobile value. You can’t use

the cents-per-mile rule for an automobile (including a truck

or van) if its value when you first make it available to any

employee for personal use is more than the maximum automobile value. Go to IRS.gov/P15B for the maximum automobile value for the calendar year 2026. For guidance

related to the impact of P.L. 115-97 on this rule, see Treasury Decision 9893, 2020-09 I.R.B. 449, available at

IRS.gov/irb/2020-09_IRB#TD-9893. If you and the employee own or lease the automobile together, see Regulations sections 1.61-21(e)(1)(iii)(B) and (C).

Vehicle. For the cents-per-mile rule, a vehicle is any motorized wheeled vehicle, including an automobile, manufactured primarily for use on public streets, roads, and

highways.

Regular use in your trade or business. Whether a vehicle is regularly used in your trade or business is determined on the basis of all facts and circumstances. A vehicle is considered regularly used in your trade or business

if one of the following safe harbor conditions is met.

• At least 50% of the vehicle’s total annual mileage is for

your trade or business.

• You sponsor a commuting pool that generally uses the

vehicle each workday to drive at least three employees to and from work.

Infrequent business use of the vehicle, such as for occasional trips to the airport or between your multiple business premises, isn’t regular use of the vehicle in your

trade or business.

Mileage test. A vehicle meets the mileage test for a calendar year if both of the following requirements are met.

• The vehicle is actually driven at least 10,000 miles

during the year. If you own or lease the vehicle only

part of the year, reduce the 10,000-mile requirement

proportionately.

• The vehicle is used during the year primarily by em-

ployees. Consider the vehicle used primarily by employees if they use it consistently for commuting. Don’t

treat the use of the vehicle by another individual

whose use would be taxed to the employee as use by

the employee.

For example, if only one employee uses a vehicle during the calendar year and that employee drives the vehicle

at least 10,000 miles in that year, the vehicle meets the

mileage test even if all miles driven by the employee are

personal.

Publication 15-B (2026)

the

first day you make the vehicle available to any employee for personal use. However, if you use the commuting rule (discussed later) when you first make the

vehicle available to any employee for personal use,

you can change to the cents-per-mile rule on the first

day for which you don’t use the commuting rule.

• You must use the cents-per-mile rule for all later years

in which you make the vehicle available to any employee and the vehicle qualifies, except that you can

use the commuting rule for any year during which use

of the vehicle qualifies under the commuting rule.

However, if the vehicle doesn’t qualify for the

cents-per-mile rule during a later year, you can use for

that year and thereafter any other rule for which the

vehicle then qualifies.

• You must continue to use the cents-per-mile rule if you

provide a replacement vehicle to the employee (and

the vehicle qualifies for the use of this rule) and your

primary reason for the replacement is to reduce federal taxes.

Items included in cents-per-mile rate.

The

cents-per-mile rate includes the value of maintenance and

insurance for the vehicle. Don’t reduce the rate by the

value of any service included in the rate that you didn’t

provide. You can take into account the services actually

provided for the vehicle by using the general valuation

rule, earlier.

For miles driven in the United States, its territories,

Canada, and Mexico, the cents-per-mile rate includes the

value of fuel you provide. If you don’t provide fuel, you can

reduce the rate by no more than 5.5 cents.

For special rules that apply to fuel you provide for miles

driven outside the United States, Canada, and Mexico,

see Regulations section 1.61-21(e)(3)(ii)(B).

The value of any other service you provide for a vehicle

isn’t included in the cents-per-mile rate. Use the general

valuation rule to value these services.

Commuting Rule

Under this rule, you determine the value of a vehicle you

provide to an employee for commuting use by multiplying

each one-way commute (that is, from home to work or

from work to home) by $1.50. If more than one employee

commutes in the vehicle, this value applies to each employee. This amount must be included in the employee’s

wages or reimbursed by the employee.

You can use the commuting rule if all the following requirements are met.

• You provide the vehicle to an employee for use in your

trade or business and, for bona fide noncompensatory

business reasons, you require the employee to commute in the vehicle. You will be treated as if you had

met this requirement if the vehicle is generally used

each workday to carry at least three employees to and

from work in an employer-sponsored commuting pool.

• You establish a written policy under which you don’t allow the employee, nor any individual whose use would

be taxable to the employee, to use the vehicle for personal purposes other than for commuting or de minimis personal use (such as a stop for a personal errand

on the way between a business delivery and the employee’s home). Personal use of a vehicle is all use

that isn’t for your trade or business.

• The employee doesn’t use the vehicle for personal

purposes other than commuting and de minimis personal use.

• If this vehicle is an automobile (any four-wheeled vehicle, such as a car, pickup truck, or van), the employee

who uses it for commuting isn’t a control employee.

See Control employee, later.

Vehicle. For this rule, a vehicle is any motorized wheeled

vehicle (including an automobile) manufactured primarily

for use on public streets, roads, and highways.

Control employee. A control employee of a nongovernment employer for 2026 is generally any of the following

employees.

• A board- or shareholder-appointed, confirmed, or

elected officer whose pay is $145,000 or more.

• A director.

• An employee whose pay is $290,000 or more.

• An employee who owns a 1% or more equity, capital,

or profits interest in your business.

A control employee for a government employer for 2026

is either of the following.

• A government employee whose compensation is

equal to or exceeds Federal Government Executive

Level V. Go to the Office of Personnel Management

website at OPM.gov/Policy-Data-Oversight/PayLeave/Salaries-Wages for 2026 compensation information.

• An elected official.

Highly compensated employee alternative. Instead of using the preceding definition, you can choose to

define a control employee as any highly compensated employee. A highly compensated employee for 2026 is an

employee who meets either of the following tests.

1. The employee was a 5% owner at any time during the

year or the preceding year.

2. The employee received more than $160,000 in pay for

the preceding year.

You can choose to ignore test (2) if the employee wasn’t

also in the top 20% of employees when ranked by pay for

the preceding year.

Lease Value Rule

Under this rule, you determine the value of an automobile

you provide to an employee by using its annual lease

value. For an automobile provided only part of the year,

use either its prorated annual lease value or its daily lease

value (discussed later).

If the automobile is used by the employee in your business, you generally reduce the lease value by the amount

that is excluded from the employee’s wages as a working

condition benefit (discussed earlier in section 2). In order

to do this, the employee must account to the employer for

the business use. This is done by substantiating the usage

(mileage, for example), the time and place of the travel,

and the business purpose of the travel. Written records

made at the time of each business use are the best evidence. Any use of a company-provided vehicle that isn’t

substantiated as business use is included in income. The

working condition benefit is the amount that would be an

allowable business expense deduction for the employee if

the employee paid for the use of the vehicle.

Automobile. For this rule, an automobile is any

four-wheeled vehicle (such as a car, pickup truck, or van)

manufactured primarily for use on public streets, roads,

and highways.

Consistency requirements. If you use the lease value

rule, the following requirements apply.

1. You must begin using this rule on the first day you

make the automobile available to any employee for

personal use. However, the following exceptions apply.

a. If you use the commuting rule (discussed earlier in

this section) when you first make the automobile

available to any employee for personal use, you

can change to the lease value rule on the first day

for which you don’t use the commuting rule.

b. If you use the cents-per-mile rule (discussed earlier in this section) when you first make the automobile available to any employee for personal use,

you can change to the lease value rule on the first

day on which the automobile no longer qualifies

for the cents-per-mile rule.

2. You must use this rule for all later years in which you

make the automobile available to any employee, except that you can use the commuting rule for any year

during which use of the automobile qualifies.

3. You must continue to use this rule if you provide a replacement automobile to the employee and your primary reason for the replacement is to reduce federal

taxes.

Annual Lease Value

Generally, you figure the annual lease value of an automobile as follows.

Publication 15-B (2026)

1. Determine the FMV of the automobile on the first date

it is available to any employee for personal use.

2. Using Table 3-1, read down column (1) until you come

to the dollar range within which the FMV of the automobile falls. Then read across to column (2) to find

the annual lease value.

3. Multiply the annual lease value by the percentage of

personal miles out of total miles driven by the employee.

Table 3-1. Annual Lease Value Table

(1) Automobile FMV

$ 0 to 999 . . . . . . . . . . . . . . . . . . . . . . . .

1,000 to 1,999 . . . . . . . . . . . . . . . . . . . .

2,000 to 2,999 . . . . . . . . . . . . . . . . . . . .

3,000 to 3,999 . . . . . . . . . . . . . . . . . . . .

4,000 to 4,999 . . . . . . . . . . . . . . . . . . . .

5,000 to 5,999 . . . . . . . . . . . . . . . . . . . .

6,000 to 6,999 . . . . . . . . . . . . . . . . . . . .

7,000 to 7,999 . . . . . . . . . . . . . . . . . . . .

8,000 to 8,999 . . . . . . . . . . . . . . . . . . . .

9,000 to 9,999 . . . . . . . . . . . . . . . . . . . .

10,000 to 10,999 . . . . . . . . . . . . . . . . . . .

11,000 to 11,999 . . . . . . . . . . . . . . . . . . .

12,000 to 12,999 . . . . . . . . . . . . . . . . . . .

13,000 to 13,999 . . . . . . . . . . . . . . . . . . .

14,000 to 14,999 . . . . . . . . . . . . . . . . . . .

15,000 to 15,999 . . . . . . . . . . . . . . . . . . .

16,000 to 16,999 . . . . . . . . . . . . . . . . . . .

17,000 to 17,999 . . . . . . . . . . . . . . . . . . .

18,000 to 18,999 . . . . . . . . . . . . . . . . . . .

19,000 to 19,999 . . . . . . . . . . . . . . . . . . .

20,000 to 20,999 . . . . . . . . . . . . . . . . . . .

21,000 to 21,999 . . . . . . . . . . . . . . . . . . .

22,000 to 22,999 . . . . . . . . . . . . . . . . . . .

23,000 to 23,999 . . . . . . . . . . . . . . . . . . .

24,000 to 24,999 . . . . . . . . . . . . . . . . . . .

25,000 to 25,999 . . . . . . . . . . . . . . . . . . .

26,000 to 27,999 . . . . . . . . . . . . . . . . . . .

28,000 to 29,999 . . . . . . . . . . . . . . . . . . .

30,000 to 31,999 . . . . . . . . . . . . . . . . . . .

32,000 to 33,999 . . . . . . . . . . . . . . . . . . .

34,000 to 35,999 . . . . . . . . . . . . . . . . . . .

36,000 to 37,999 . . . . . . . . . . . . . . . . . . .

38,000 to 39,999 . . . . . . . . . . . . . . . . . . .

40,000 to 41,999 . . . . . . . . . . . . . . . . . . .

42,000 to 43,999 . . . . . . . . . . . . . . . . . . .

44,000 to 45,999 . . . . . . . . . . . . . . . . . . .

46,000 to 47,999 . . . . . . . . . . . . . . . . . . .

48,000 to 49,999 . . . . . . . . . . . . . . . . . . .

50,000 to 51,999 . . . . . . . . . . . . . . . . . . .

52,000 to 53,999 . . . . . . . . . . . . . . . . . . .

54,000 to 55,999 . . . . . . . . . . . . . . . . . . .

56,000 to 57,999 . . . . . . . . . . . . . . . . . . .

58,000 to 59,999 . . . . . . . . . . . . . . . . . . .

(2) Annual lease

value

600

850

1,100

1,350

1,600

1,850

2,100

2,350

2,600

2,850

3,100

3,350

3,600

3,850

4,100

4,350

4,600

4,850

5,100

5,350

5,600

5,850

6,100

6,350

6,600

6,850

7,250

7,750

8,250

8,750

9,250

9,750

10,250

10,750

11,250

11,750

12,250

12,750

13,250

13,750

14,250

14,750

15,250

For automobiles with an FMV of more than $59,999,

the annual lease value equals (0.25 × the FMV of the automobile) + $500.

FMV. The FMV of an automobile is the amount a person

would pay to buy it from a third party in an arm’s-length

transaction in the area in which the automobile is bought

Publication 15-B (2026)

or leased. That amount includes all purchase expenses,

such as sales tax and title fees.

If you have 20 or more automobiles, see Regulations

section 1.61-21(d)(5)(v). If you and the employee own or

lease the automobile together, see Regulations section

1.61-21(d)(2)(ii).

You don’t have to include the value of a telephone or

any specialized equipment added to, or carried in, the automobile if the equipment is necessary for your business.

However, include the value of specialized equipment if the

employee to whom the automobile is available uses the

specialized equipment in a trade or business other than

yours.

Neither the amount the employee considers to be the

value of the benefit nor your cost for either buying or leasing the automobile determines its FMV. However, see

Safe-harbor value next.

Safe-harbor value. You may be able to use a

safe-harbor value as the FMV.

For an automobile you bought at arm’s length, the

safe-harbor value is your cost, including sales tax, title,

and other purchase expenses. This method isn’t available

for an automobile you manufactured.

For an automobile you lease, you can use any of the

following as the safe-harbor value.

• The manufacturer’s invoice price (including options)

plus 4%.

• The manufacturer’s suggested retail price minus 8%

(including sales tax, title, and other expenses of purchase).

• The retail value of the automobile reported by a na-

tionally recognized pricing source if that retail value is

reasonable for the automobile.

Items included in annual lease value table. Each annual lease value in the table includes the value of maintenance and insurance for the automobile. Don’t reduce the

annual lease value by the value of any of these services

that you didn’t provide. For example, don’t reduce the annual lease value by the value of a maintenance service

contract or insurance you didn’t provide. You can take into

account the services actually provided for the automobile

by using the general valuation rule, discussed earlier.

Items not included. The annual lease value doesn’t

include the value of fuel you provide to an employee for

personal use, regardless of whether you provide it, reimburse its cost, or have it charged to you. You must include

the value of the fuel separately in the employee’s wages.

You can value fuel you provided at FMV or at 5.5 cents per

mile for all miles driven by the employee. However, you

can’t value at 5.5 cents per mile fuel you provide for miles

driven outside the United States (including its territories),

Canada, and Mexico.

If you reimburse an employee for the cost of fuel, or

have it charged to you, you generally value the fuel at the

amount you reimburse, or the amount charged to you if it

was bought at arm’s length.

If you have 20 or more automobiles, see Regulations

section 1.61-21(d)(3)(ii)(D).

If you provide any service other than maintenance and

insurance for an automobile, you must add the FMV of

that service to the annual lease value of the automobile to

figure the value of the benefit.

Four-year lease term. The annual lease values in the

table are based on a 4-year lease term. These values will

generally stay the same for the period that begins with the

first date you use this rule for the automobile and ends on

December 31 of the fourth full calendar year following that

date.

Figure the annual lease value for each later 4-year period by determining the FMV of the automobile on January

1 of the first year of the later 4-year period and selecting

the amount in column (2) of the table that corresponds to

the appropriate dollar range in column (1).

Using the special accounting rule. If you use the

special accounting rule for fringe benefits discussed in

section 4, you can figure the annual lease value for each

later 4-year period at the beginning of the special accounting period that starts immediately before the January 1

date described in the previous paragraph.

For example, assume that you use the special accounting rule and that, beginning on November 1, 2025, the

special accounting period is November 1 to October 31.

You elected to use the lease value rule as of January 1,

2026. You can refigure the annual lease value on November 1, 2029, rather than on January 1, 2030.

Transferring an automobile from one employee to another. Unless the primary purpose of the transfer is to reduce federal taxes, you can refigure the annual lease

value based on the FMV of the automobile on January 1

of the calendar year of transfer.

However, if you use the special accounting rule for

fringe benefits discussed in section 4, you can refigure the

annual lease value (based on the FMV of the automobile)

at the beginning of the special accounting period in which

the transfer occurs.

Prorated Annual Lease Value

If you provide an automobile to an employee for a continuous period of 30 or more days but less than an entire calendar year, you can prorate the annual lease value. Figure

the prorated annual lease value by multiplying the annual

lease value by a fraction, using the number of days of

availability as the numerator and 365 as the denominator.

If you provide an automobile continuously for at least 30

days, but the period covers 2 calendar years (or 2 special

accounting periods if you’re using the special accounting

rule for fringe benefits discussed in section 4), you can

use the prorated annual lease value or the daily lease

value.

If you have 20 or more automobiles, see Regulations

section 1.61-21(d)(6).

If an automobile is unavailable to the employee because of the employee’s personal reasons (for example, if

the employee is on vacation), you can’t take into account

the periods of unavailability when you use a prorated annual lease value.

Caution: You can’t use a prorated annual lease value if

the reduction of federal tax is the main reason the automobile is unavailable.

Daily Lease Value

If you provide an automobile to an employee for a continuous period of less than 30 days, use the daily lease value

to figure its value. Figure the daily lease value by multiplying the annual lease value by a fraction, using four times

the number of days of availability as the numerator and

365 as the denominator.

However, you can apply a prorated annual lease value

for a period of continuous availability of less than 30 days

by treating the automobile as if it had been available for 30

days. Use a prorated annual lease value if it would result

in a lower valuation than applying the daily lease value to

the shorter period of availability.

Unsafe Conditions Commuting Rule

Under this rule, the value of commuting transportation you

provide to a qualified employee solely because of unsafe

conditions is $1.50 for a one-way commute (that is, from

home to work or from work to home). If more than one employee commutes in the vehicle, this value applies to each

employee. This amount must be included in the employee’s wages or reimbursed by the employee.

You can use the unsafe conditions commuting rule for

qualified employees if all of the following requirements are

met.

• The employee would ordinarily walk or use public

transportation for commuting.

• You have a written policy under which you don’t provide the transportation for personal purposes other

than commuting because of unsafe conditions.

• The employee doesn’t use the transportation for per-

sonal purposes other than commuting because of unsafe conditions.

These requirements must be met on a trip-by-trip basis.

Commuting transportation. This is transportation to or

from work using any motorized wheeled vehicle (including

an automobile) manufactured for use on public streets,

roads, and highways. You or the employee must buy the

transportation from a party that isn’t related to you. If the

employee buys it, you must reimburse the employee for its

cost (for example, cab fare) under a bona fide reimbursement arrangement.

Qualified employee. A qualified employee for 2026 is

one who:

• Performs services during the year;

• Is paid on an hourly basis;

Publication 15-B (2026)

• Isn’t claimed under section 213(a)(1) of the Fair Labor

Standards Act (FLSA) of 1938 (as amended) to be exempt from the minimum wage and maximum hour provisions;

• Is within a classification for which you actually pay, or

have specified in writing that you will pay, overtime pay

of at least one and one-half times the regular rate provided in section 207 of FLSA; and

• Received pay of not more than $160,000 during 2025.

However, an employee isn’t considered a qualified employee if you don’t comply with the recordkeeping requirements concerning the employee’s wages, hours, and other

conditions and practices of employment under section

211(c) of FLSA and the related regulations.

Unsafe conditions. Unsafe conditions exist if, under the

facts and circumstances, a reasonable person would consider it unsafe for the employee to walk or use public

transportation at the time of day the employee must commute. One factor indicating whether it is unsafe is the history of crime in the geographic area surrounding the employee’s workplace or home at the time of day the

employee commutes.

4. Rules for Withholding,

Depositing, and Reporting

Use the following guidelines for withholding, depositing,

and reporting taxable noncash fringe benefits.

Valuation of taxable fringe benefits. Generally, you

must determine the value of taxable noncash fringe benefits no later than January 31 of the next year. Before January 31, you may reasonably estimate the value of the

fringe benefits for purposes of withholding and depositing

on time.

Choice of period for withholding, depositing, and reporting. For employment tax and withholding purposes,

you can treat taxable noncash fringe benefits (including

personal use of employer-provided highway motor vehicles) as paid on a pay period, quarter, semiannual, annual, or other basis. But the benefits must be treated as

paid no less frequently than annually. You don’t have to

choose the same period for all employees. You can withhold more frequently for some employees than for others.

You can change the period as often as you like as long

as you treat all of the benefits provided in a calendar year

as paid no later than December 31 of the calendar year.

You can also treat the value of a single fringe benefit as

paid on one or more dates in the same calendar year,

even if the employee receives the entire benefit at one

time. For example, if your employee receives a fringe benefit valued at $1,000 in one pay period during 2026, you

can treat it as made in four payments of $250, each in a

different pay period of 2026. You don’t have to notify the

IRS of the use of the periods discussed above.

Publication 15-B (2026)

Transfer of property. The above choice for reporting

and withholding doesn’t apply to a cash fringe benefit or a

fringe benefit that is a transfer of tangible or intangible personal property of a kind normally held for investment or a

transfer of real property. For these kinds of fringe benefits,

you must use the actual date the property was transferred

to the employee.

Withholding and depositing taxes. You can add the

value of taxable fr

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