Building Your Business Business Taxes When is Employee Housing Taxable to the Employee? By Jean Murray Jean Murray Facebook Twitter Jean Murray, MBA, Ph.D., is an experienced business writer and teacher who has been writing for The Balance on U.S. business law and taxes since 2008. She has taught accounting, business law, and business finance at business and professional schools for over 35 years, has authored several books on saving money and simplifying your business, and was the owner of startup-focused company Emence Enterprises, LLC. learn about our editorial policies Updated on September 13, 2022 Fact checked by Vikki Velasquez Fact checked by Vikki Velasquez Vikki Velasquez is a freelance copyeditor and researcher with a degree in Gender Studies. Previously, she conducted in-depth research on social and economic issues such as housing, education, wealth inequality, and the historical legacy of Richmond VA as well as their intersectionality while working for a community leadership nonprofit. Vikki leverages her nonprofit experience to enhance the quality and accuracy of Dotdash's content. learn about our editorial policies Share Tweet Pin Email In This Article View All In This Article Lodging Expenses and Taxes Restrictions on Housing Benefits Employee Housing Overseas Reporting Taxable Benefits Photo: Maskot/Getty Images Some businesses pay housing expenses—the IRS calls them lodging expenses—for employees. Depending on the circumstances, certain housing and living benefits can be taxable to the employee, and sometimes these benefits can be a deductible business expense for your company. Several kinds of housing arrangements for employees include: Employer paying for the housing of employee's choice, often using a housing allowance.Employer-provided housing for employees at a specific location.Temporary lodging for employees while they travel on company business. Lodging Expenses and Taxes Tax Deductible for the Employer If you pay for lodging for employees under any of the arrangements above, this expense is considered to be deductible as a business expense. That is, you can include these costs on your business tax return if you can show they are ordinary and necessary business expenses. Taxable to the Employee Employee housing benefits can be non-taxable to employees if all three of these conditions are met: The housing is provided on the property owned by the business or employer.The housing is provided for the convenience of the employer. The employer must have a "substantial business reason" for this, such as a remote work location.The employee must accept housing as a condition of employment. A condition of employment is an agreement at the beginning of employment by both employer and employee. Some examples of housing that meets the criteria and are not taxable to the employee include: Fishing employees who live on a boat provided by the companyA construction employee who works at a remote location that has no other housing availableA live-in nanny who must care for children at all hours Giving an employee a place to stay or offering a housing allowance because they have a long commute does not meet the definition of a condition of employment. The condition of employment requirement means the employee can't perform the job without staying on your property. Meals for employees that are provided on your business property for the convenience of employment are excluded from employee taxes. Restrictions on Housing Benefits In addition to the three criteria above, there are other reasons your payments for employee housing might be taxable to employees. Employee housing can't be included in a cafeteria benefits plan. These are separate benefits and they must be taxed separately. If you pay employees a housing allowance or allow the employee to take extra pay instead of providing them housing, it's taxable to the employee, even if on-premises housing is one of the options. Housing as part of an education benefit is considered taxable to the employee. Employee Housing Overseas The value of lodging for overseas employees isn't taxable for the employee if it meets all three of these requirements: Housing must be at your business locationHousing must be for the convenience of your companyThe employee must accept the housing as a condition of employment Reporting When Housing Is Taxable If the employee's housing benefit is taxable it must be included in the employee's income for tax reporting. You will need to include this value on the employee's annual W-2 form in Box 1, along with other fringe benefits. Use the fair market value of the cost to determine the amount. Any amounts the employee pays for rent or the housing cost are deducted from the W-2 amount. This benefit is subject to income taxes and Federal Insurance Contributions Act (FICA) taxes and it must be included on the W-2 in Box 3 (Social Security Wages) and Box 5 (Medicare Wages). If you don't include an amount for this benefit on the employee's paycheck, ensure the employee knows, so they can plan for this additional tax at tax time. Unreimbursed Employee Housing No Longer Deductible to Employees Unreimbursed Housing Expenses No Longer Deductible to Employees The 2017 Tax Cuts and Jobs Act took away the ability of employees to deduct unreimbursed housing expenses and other unreimbursed expenses as miscellaneous expenses on Schedule A. Employer-Provided Housing for Employees: Get an Agreement If you provide housing for employees, on your property or somewhere else, you are in effect creating a landlord-tenant relationship, and you should have a signed agreement with each employee. Landlord-tenant law is regulated by states. An attorney should help you work out the details so that you comply with your state's laws. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. IRS. "Publication 535 Business Expenses," Page 9. Accessed March 17, 2021. IRS. "Publication 15-b Employee Fringe Benefits," Page 17. Accessed March 17, 2021. IRS. "Publication 15-b Employee Fringe Benefits," Page 3. Accessed March 17, 2021. IRS. "Publication 15-b Employee Fringe Benefits," Page 10. Accessed March 17, 2021. IRS. "Publication 54 U.S. Tax Guide for U.S. Citizens and Resident Aliens Abroad," Page 19. Accessed March 17, 2021. IRS. "General Instructions for Forms W-2 and W-3," Page 10. Accessed March 17, 2021. IRS. "IRS Updates Guidance for Deductible Business, Charitable, Medical and Moving Expenses." Accessed March 17, 2021.