[TheGoodCPA]

Hi guys,

At work today I have been having trouble figuring out how to account for a situation where an employer pays for housing for an employee. Need some of you guys’ inputs on what entries to book for this.

For example, the employer owns a property, which they normally charge $1500 for rent but they have provided it for free to the employee. It makes sense to me to book:

Noncash Revenue $150K
Noncash Compensation $150K

However, since it’s a noncash transaction, we should not be overstating revenue, so maybe some kind of intercompany receivable/liability?

AUD - 83 (5/13/16)
FAR - 77 (7/20/16)
BEC - (8/12/16)
REG - (10/15/16)

[rsg149]

Sounds like a payroll benefit to me. More important for tax implications than reporting though.

I could be wrong.

[Earla Riopel (NYCARE)]

Hi @TheGoodCPA,
As to your question:
“…For example, the employer owns a property, which they normally charge $1500 for rent but they have provided it for free to the employee. It makes sense to me to book:

Noncash Revenue $150K
Noncash Compensation $150K

However, since it's a noncash transaction, we should not be overstating revenue, so maybe some kind of intercompany receivable/liability?”

My reply:
This is more like an accounting and tax question.

For profit company:
For accounting, as an employer, I would ask myself, what did I get for the amount that I paid for. This clearly an employee compensation, a salary expense.

Normally, the JE would be:
Dr. Salary Expense – $1500
Cr. Salary Payable or Cash $1500

This time, the JE would be:
Dr. Salary Expense – $1500
Cr. Non Cash Compensation – $1500

Just an expense (salary expense – in form of non-cash compensation). There would no income, because the usage of non-cash transaction was like the usage of cash.

For taxation:
It would be considered as taxable benefit.
The recipient (employee) will report it as income on his/her Form 1040.
The employer can eligibly deduct it as valid expense.

Lastly, think the case of live-in caregiver, butler, gardener, or housekeeper.

Check with your superiors, if they have corresponding/special accounts in dealing with this type of transaction.

Good luck.

[ellejay]

I agree with Earla. This is a fringe benefit to the employee. It is considered to be compensation for the employee and I do not believe would be considered revenue.

FYI, it is subject to employment taxes and has to be reported on the employee's W-2. There is more information here: https://www.irs.gov/publications/p15b/ar02.html#en_US_2017_publink1000193627 – you will want to make sure it is being handled via payroll correctly. There are some exemptions outlined in the publication.

[IwannabeaCPA2017]

I could be wrong but this should be consider as a fringe benefit which should be included in W2 wages. I have similar clients that receive benefits (ex: car usage) where they have to breakdown the usage between personal and work related.

[Namstut]

I work for a real estate investment company and we own commercial and residential properties. Depending on how you account for revenue, you would record the revenue as usual and book the amount of free rent to a contra revenue account, such as rent abatement or concession. Your net revenue for the unit will be zero.

AUD 7/6/16 Passed
BEC 9/3/16
FAR TBD
REG TBD

[Anonymous]

I agree with others that it should be set up as a payroll liability rather than revenue. Since it's not the principal business and it's for an employee, it should be considered an employee benefit. In the case above me with the real estate company, leasing properties is it's primary operating function and it's not leasing directly to employees.

With that said, there should also still be a contract with the employee indicating rental terms. I would set up a deferred payroll liability for the entire amount and reduce it month by month as incurred.

You also want to consider depreciation on the property. If it's used solely or partly for business you would deduct a percentage of depreciation.

Also something to consider is whether the property's mortgage is paid for with business funds or personal. If there is a commingling of assets, this can be referred to as piercing the corporate vail and this would put the owner's personal assets at risk in the event of a lawsuit.

[Author]

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