What Are Line of Business Limitations?
Let me explain line of business limitations directly: this is a federal income tax rule that applies to fringe benefits employers provide to their employees. If your company operates in multiple lines of business and you receive a fringe benefit from a line you don't work in, you have to pay taxes on that benefit.
Understanding Line of Business Limitations
Take this example to grasp it: if you work for a movie theater and your company also owns an amusement park, getting free or discounted admission to the park means you pay taxes on that value, as the IRS sees it as income. But if you get a free movie ticket at your theater, you generally don't pay tax on it, since it's not hit by line of business limitations.
Remember, products or services sold mainly to employees, not the general public, aren't considered employee discounts and skip these rules.
Your employer's line of business comes from the Enterprise Standard Industrial Classification (ESIC) Manual by the U.S. Office of Management and Budget. If the company sells products or services in more than one two-digit ESIC category, it has multiple lines.
Exemptions from Line of Business Limitations
In certain cases, you can aggregate business lines into one for these rules. This happens if it's unusual in your industry to run one line separately from others, or if many employees do substantial work across multiple lines, making assignment tough. Then, you won't face taxes on those fringe benefits.
Also, reciprocal agreements between two employers in the same line exempt you from these rules for tax-free benefits from the other employer. These must be written agreements without substantial extra costs to either side. This only covers no-additional-cost benefits, not qualified employee discounts.
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