Navigating Employee Benefits Taxation: Taxable and Non-Taxable Benefits

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Lifestyle spending accounts are a rising trend in employee benefits programs. With these accounts, employers provide staff with an annual stipend that can be used on a variety of personalized perks like pet care, fitness, travel and more. Employees appreciate the flexibility and autonomy these accounts provide.

However, the taxation of lifestyle spending accounts is complex, depending on many factors like country regulations, account structure, benefits offered, and more. Tax obligations and treatment can vary greatly.

This leaves HR teams with critical considerations when it comes to taxes. Thoughtful planning and guidance are required to make sure taxation is handled appropriately. Missteps could lead to compliance issues, employee dissatisfaction, and unnecessary tax burdens.

That’s why it’s so important for HR professionals to understand key taxation factors, collaborate with tax advisors, leverage platform capabilities, educate employees, and take proactive steps to optimize the taxation of these accounts.

This article will provide an overview of vital taxation considerations when implementing lifestyle spending accounts. With proper planning, HR teams can structure these accounts to delight employees while optimizing their tax treatment. Let’s explore how.

We're Partners, Not Tax Advisors

First things first: We at ThrivePass know benefits like the back of our hands, but we're not tax advisors. Tax obligations can vary from country to country, and even state to state. The following insights should be considered general guidance and not legal or financial advice. Always consult with your tax advisor for specific details tailored to your situation.

Taxable Income Considerations: A Comprehensive Look

Taxable income is a multifaceted aspect that can generate numerous questions and concerns. In the U.S., the utilization of various employee benefits is often considered taxable income, and understanding the specifics is paramount to compliance and best practices. Here's a deeper exploration of how ThrivePass assists with these considerations:

  • What's Considered Taxable: For most items available through employee benefits in the U.S., this utilization is categorized as taxable income for the employees. It's not just about numbers on paper but involves real-world decisions that can affect your workforce's financial wellbeing.
  • W2 Reporting: The above taxable incomes need to be meticulously reported on W2 forms. Ensuring accuracy in this area is vital to avoid complications with the IRS and other tax authorities.
  • Automated Reporting for Efficiency: ThrivePass streamlines this process by providing automated and comprehensive reporting for HRIS accessibility. With reports providing reconciliation and sorted by country, the daunting task of tax reporting becomes more manageable and efficient.
  • Close Collaboration on Product Offering: It's not a one-size-fits-all situation. Your ThrivePass team will closely collaborate with you to strategize on the product offering that will best fit your organization's unique needs. Whether it's a Section 125 benefit or Thrive Account Wallet offering, this personalized approach ensures alignment with your company's tax obligations.
  • Understanding Different Plan Types: Every organization has unique needs and nuances. ThrivePass recognizes this by offering a flexible approach to taxable plans. Whether you choose to tax a plan or not, we support your decision by providing accurate reports to guide you.
  • A Partner, Not Just a Provider: Our dedication goes beyond merely handling your taxable income considerations. We work alongside you as partners to offer insights and support that enhance your understanding of this complex area.

Taxable income considerations don't have to be an overwhelming challenge. With ThrivePass's blend of technology, collaboration, and adaptability, we provide the tools and insights to turn confusion into clarity. Together, we'll find the right approach that resonates with your organization's goals, compliance needs, and employee satisfaction.

Understanding State and Local Federal Tax: A Detailed Overview

State and local federal taxes play a crucial role in the overall taxation landscape of employee benefits. While ThrivePass's approach ensures compliance with these obligations, understanding the nuances involved can empower organizations to make more informed decisions. Let's delve into the specifics:

  • Handling State and Local Federal Taxes: At ThrivePass, we meticulously handle state and local federal taxes within the framework of our services. However, it's essential to recognize that our expertise remains within these bounds, and we consciously stay out of specific taxing decisions that fall outside this jurisdiction.
  • Importance of Collaboration: Taxation isn't a solitary journey. It requires close collaboration between different stakeholders, including employers, tax advisors, and service providers like ThrivePass. Together, we can navigate the complex web of state and local federal tax regulations.
  • Taxable and Non-Taxable Plans: ThrivePass's accounts are generally set up as taxable plans. However, the final decision on taxing a plan or not rests with the employer and their tax advisors. This flexibility acknowledges the diverse needs and strategies of different organizations.
  • Customized Reporting: If our client opts for a tax-free plan and wishes to distinguish between taxable and non-taxable items, ThrivePass can provide tailored reports. These reports showcase what's taxable and what's not, serving as a valuable guide but leaving the ultimate decision-making to the client.
  • Multiple Wallet Options: Sometimes, clients may have a main wallet that's taxable, with secondary wallets (or categories) that aren't. ThrivePass's platform is designed to accommodate these variations, aligning with the specific strategies and preferences of each client.
  • Funding Flexibility with Thrive Accounts: One of the unique features of ThrivePass is the funding flexibility offered with Thrive Accounts. These don't have to be fully funded in advance, with funding based on two months' deposits and features like auto-funding and auto-replenishment.

Navigating state and local federal tax considerations can feel like a daunting task with intricate details. ThrivePass's commitment to collaboration, flexibility, and transparent reporting is aimed at smoothing out this road, guiding organizations with insight and expertise.

Whether you're exploring a Section 125 benefit or Thrive Account Wallet offering, our dedicated team will work with you to align your benefits platform with both state and federal tax requirements, all while focusing on the unique needs and goals of your organization.


The landscape of taxation with employee benefits is multifaceted, but ThrivePass aims to make it more accessible. By collaborating closely with our clients and providing comprehensive reporting tools, we enable you to make informed decisions on taxation.

The world of employee benefits is vibrant and full of potential. With ThrivePass, you're not navigating it alone. Together, we'll find the solutions that resonate with your organization's unique culture and goals.

For more personalized guidance tailored to your specific needs, reach out to us. Let's embark on this exciting journey together, empowering your employees to thrive through exceptional service and innovative benefits technology. Because at ThrivePass, your success is our success.