Generally, the value of lodging provided by an employer to an employee, a spouse, or dependents is excluded from gross income if all of the following requirements are met:
- The lodging is on the employer's business premises. Business premises usually means the employee's place of employment, and the Tax Court has interpreted the phrase to mean either living quarters that constitute an integral part of the business property or premises on which the company carries on some of its business activities.
- The lodging is for the convenience of the employer.
- The employee is required to accept the lodging as a condition of his or her employment. Lodging is considered to be a condition of employment if the employee is required to accept the lodging in order to properly perform the duties of the job. This means that the lodging is provided by the employer because the employee must be available for duty at all times or because the employee would not be able to perform the required services unless the employer provided the lodging. A court has concluded that there is no real difference between the "convenience of the employer" test and the "condition of employment" test.
The value of any utilities furnished to the employee by the employer is excluded from gross income unless the employee contracts directly with the utility company.
If the lodging provided by the employer is campus housing furnished to employees by an educational or medical research institution but it does not meet the three conditions listed above, it still might qualify for exclusion from gross income. In order for the employee to exclude the fair market value of the campus lodging, it must be qualified campus lodging and the employee must pay adequate rent.
Qualified campus lodging is lodging provided to an employee or his or her spouse and dependants by, or on behalf of, the institution for use as a home. The lodging must be located on or near a campus of the employing educational institution or academic health center.
In order to determine if a rental is adequate and therefore entitled to an exclusion from gross income, the annual rent paid must be at least equal to the lesser of five percent of the appraised value of the lodging or the average of the rentals paid by nonemployees or nonstudents for comparable lodging provided by the institution. If the amount paid by the employee is less than the smaller of these two amounts, the difference must be included in gross income.
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