If you work for an employer that provides you with housing or reimburses you for your living expenses, you must include the value of the housing or the amount of reimbursements in your taxable income unless you meet one of the exceptions. The exceptions cover housing located on the employer's premises; housing for the clergy; housing for faculty members of an educational institution; and housing your employer provides when you relocate temporarily. Unless employer-provided lodging meets one of the criteria for exemption, the value of the lodging is reported on your W-2 form or a form 1099, and is subject to income and payroll tax.
Exempt Employee Housing
If you are not on a temporary work assignment that requires you to be away from home, any housing for which your employer pays must be included in your taxable income unless you satisfy three requirements. To exclude the housing, the housing your employer provides must be on the same premises as your work location and it must be for the convenience of your employer instead of your own. In addition, accepting the employer on-site housing must be a condition of employment - that is, you must live in the provided lodging in order to be able to perform your job duties.
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Temporary Job Assignment
When your employer requires you to temporarily relocate to a different geographic area and you don't anticipate the assignment to last longer than one year, you can exclude from your taxable income any housing your employer pays for. If the assignment winds up lasting longer than a year, you can still exclude the housing from taxable income provided that you didn't expect the assignment to last that long when you initially relocated. But if your employer entices you to permanently relocate to a new area by paying for all of your housing expenses, the entire amount is part of your taxable compensation.
College professors and instructors often live in housing owned by their college or university employer. And although it doesn't qualify for total exemption from taxable income when off-campus, the Internal Revenue Service does allow you to minimize the taxable amount. If the school offers you a below-market rental rate, you can exclude the discount from taxable income provided your annual rent is equal to the lesser of 5 percent of the home's appraised value or the average rent the school collects from tenants who are not employees or students.
If you are a clergy member, such as a minister, priest or rabbi, the IRS provides you with a special exemption and doesn't require you to report as taxable income any housing or living allowances you receive. However, the value of the housing you receive must reasonably relate to the services you provide to the religious organization. For example, if a parish church provides a priest with a modest residence within commuting distance of the church, its value would generally be excluded from taxable income. However, if the church provides the priest with a sprawling 10,000-square-foot estate and includes two full-time servants, the housing doesn't reasonably relate to the services a priest provides the church.
Employer-provided Housing While on Foreign Assignment
If your employer transfers you to a job assignment in another country and provides you with housing or a housing allowance, several tax issues are raised, including a foreign lodging allowance allowed by the IRS, as well as the foreign taxing authority's interest in taxing the benefit. You should carefully review such situations with your tax professional and your employer's accountant.