The IRS established guidelines that determine whether room and board, also known as meals and lodging, is subject to taxation by the employee. This type of expense incurred by the employer typically affects such employees as college residents (CR) and household employees. Your first clue that your employer may be holding you responsible for these costs is when you receive a Form W-2 and discover the amount added to your wages. Before assuming the employer is right, learn what room and board amounts are not considered remuneration for services rendered.
Meals
Meals furnished by the employer and on the employer’s premises for the express purpose of keeping you at work are considered to be an expense incurred by the employer for this convenience. These expenses are not considered a part of your wages and should not appear on your W-2. The IRS considers this type of expense a convenience to the employer because it keeps employees working and on company property and under company management.
Lodgings
Lodgings that are not taxable by the employee are furnished on the employer’s premise and the use of the room are for the convenience of the employer. The use of the room must be a condition of employment. A good example would be a live-in nanny. By definition, a live-in nanny lives under her employer’s roof, and depending on the employment and habits of the employer, a necessity in order to do her job.
Students
Employees are not the only people considered with how room and board affects their taxes, students also face concerns about how on campus lodgings affect their taxes. Students who act a dorm CRs, staff assistants, medical residents and other positions that require them to stay close to the campus and work odd hours or on an emergency basis need not be concerned with federal tax liability. Their positions are considered employment, even though they may be earning more experience and on-the-job training than they are wages.
Other
Other types of meals and lodging related to employment are also not taxable and could actually be a tax deduction to the employee. If an employee travels as part of employment, he may need to arrange meals and lodging while on the trip. While the meals and lodging are not on the employer’s premises, any reimbursement for the cost of these expenses is deemed a legitimate business expense of the employer, not an addition to wages for the employee. Any of these expenses that are not reimbursed by the employer may be claimed as a tax deduction on the employee’s personal tax return.