For some careers and positions, it is not unusual for employers to offer a housing provision for their employees. At times, they might pay rent or even rent an apartment on the behalf of that person and their family. This is a pretty good setup for both parties, at least in most situations.
So, can your company do something similar for you? The answer could be “yes,” but it depends on who you work for. Small businesses usually won’t be able to afford such a benefit, but larger organizations may have employer housing for you.
Why Would a Company Rent an Apartment for Their Employees?
There are many reasons why an employer company may want to provide something more than a designated workplace for some employees. Here are some of them now:
For some companies, the business purposes require having staff on-site. Think about universities and other institutes offering higher education.
Employers may want to attract certain employees and keep them within their workforce for as long as possible. At certain levels, a higher salary may not be good enough. So, providing a new residence is a major benefit to ensure employee loyalty.
Benefits to the Company
Some workplaces might find it easier to conduct business if they have certain employees living nearby or on-site. For instance, a property owner may require someone from the management company to be on the premises at all hours if they are running an apartment complex. This gives them a personal guarantee that someone responsible will be present to manage all situations at any hour of the day.
Helping Out During Hardship
If an employee is facing undue hardship at a certain point, they might not be able to find a suitable rental property for their needs. This is most likely in the case of disability.
The employee might be an old and loyal one for the company, and still valuable for their services in spite of their hardship. In such cases, their employers may consider paying rent for more accessible accommodation within local zoning laws. This will ensure that the company retains their employee and the employee can keep working despite their hardship.
Temporary Working Location
If your job requires you to work in a temporary location for some time, they might pay rent for that time. This way, you wouldn’t have to worry about how much income is required to rent an apartment in that area.
For example, an employee in Michigan might have a permanent residence in the city of Detroit. However, if their company has to send them to work in Phoenix for some time, they will pay rent for all accommodation required during that period.
Since employee benefits are usually considered as part of the income you earn, they are also taxed by the government. However, employee housing might not be taxed in certain situations. Even in such cases, you should still be informed about what bills to expect when renting an apartment.
Can My Company Rent an Apartment for Me?
It might be possible to provide income for rent when self-employed. However, it is a great load off your back when your employer agrees to rent an apartment for you. Paying rent is one of the biggest monthly expenses for many individuals. So, saving on that hassle will be an attractive perk of any job.
Here are the ways in which your employer might choose to rent an apartment or arrange some other type of rental property for your accommodation needs:
1. Providing Housing for the Benefit of the Employer
If an employer wants to provide housing for their own business purposes, they might be able to get taxes waived for it. This applies in the following situations:
- The housing is provided for the employers’ business interests – there should be a direct link between the employee living in an apartment and their role at the company
- It is required in the employment contract and the employee accepts that money in lieu of an apartment will not be viable
- The apartment is located on the company’s business premises (the employer should also own these premises), with the apartment being an integral section of the property
The Necessary Documentation
If the apartment is to be nontaxable, the employer needs to file some documentation. The requirements may vary from one location to another, but we may expect to provide at least the following:
- The employee’s responsibilities within the employing company
- An apartment description
- The various reasons why the employee needs an apartment in order to properly perform their work at the company
- The terms in the contract between employer and employee
- A thorough list of all services and utilities (taxable and non-taxable) that the employee receives while residing in the apartment
What if the Apartment is Not on the Business Premises?
If the apartment is outside of business premises, there are additional required steps. In this case, you will have to make a log of the activities in the unit. For tax purposes, there needs to be evidence that the apartment is utilized for work-related activities.
The apartment may also be under a management company rather than the employing business. Again, the exact requirements will depend on where the apartment is located and the contract between the employer and business.
2. The Employee is Working in a Temporary Location
We have already talked about how a company might pay rent for an apartment if the employee is in a temporary work location. Again, this setup might be subject to tax exemptions. However, there are several aspects to consider before anyone can get these benefits:
- The required work is at a considerable distance from the employee’s permanent or regular residence; this usually means that it needs to be outside the area or even the whole city where the employee usually works
- The project or assignment must not be planned for a longer time than one year; if the employers are not sure about the end time of the work or want the employee to go for more than a year, the apartment will count as a regular tax home (in this case, the rent paid will fall under taxable criteria).
- The main or tax home will be determined according to the number of hours, source of income, and the activity level of the employee at the various locations. For instance, if they have to live in a Michigan apartment for nine months with an income of $50,000, but have a permanent residence in California with $20,000 earned during the rest of the year—the Michigan unit is not tax-free.
- Regarding the last point, the Michigan apartment might get a tax-free treatment if the employee is hired for a certain project that does not extend to a year. In this case, they will have to prove that they have a tax home in California already.
3. The Provided Apartment is within an Educational Campus
Several academic health centers or higher educational institutions prefer to have some of their staff on premises at all times. Part of the university experience is having professors living on the same campus and being easily available for student interaction, events, etc. The employers in such institutions may provide already paid-for apartments or offer discounted rental rates.
There will usually be tax exemptions for approved apartments if they are situated in the premises of an educational organization. However, this exemption will usually be for the amount in excess of the lesser of the following:
- 5% of the approved apartment’s appraised value
- The average rent for the housing or the fair market value of property that the educational institution provides
As an example, someone who works in a college (that owns apartments in or near the premises) might be able to live in a unit with a low rental rate. Around 5% of the apartment’s appraised value can be counted as a nontaxable benefit in such cases.
4. Considering Housing as a Fringe Benefit
An employer may provide housing as part of the fringe benefits offered to desirable employees. They may also do this to retain an employee who is considering a resignation due to housing issues.
In both these cases, the IRS will usually consider the value of the housing as a taxable benefit. This will be part of the employee’s taxable income. Whether it is housing that the employer pays rent for or a housing allowance, it needs to be reported and included while filing taxes.
Some employers may offer a choice between a higher pay and housing benefits for their employees. Even in this situation, the lodging will be taxable due to the choice available.
5. Taxes on Employer-Provided Housing
If the housing an employer provided does not meet the IRS requirements that are necessary to exclude it from wages, it will fall under taxable fringe benefits. These might give rise to taxes such as:
- Federal income tax
- Medicare tax
- Social Security tax
- Federal unemployment (FUTA) tax
In some states, the general valuation rule applies when we want to determine fringe benefit values. This means that we have to look at the fair market value of housing at that point. This is possible by doing the following:
- Finding out the value of similar housing within the same area
- Asking a realtor to estimate the value of the housing
- Getting a property appraisal
6. Employees in a Tenant Status
If an employer owns some property, they might want to rent it out to their employee. For this to be a housing benefit, the rent should be reduced or eliminated altogether. They may also simply require the tenant/employee to pay the security deposit or just waive all fees.
In such cases, it is best to make a proper signed agreement between the landlord and tenant. This process should also be applied to each employee who gets the housing benefit. The lease agreement needs to adhere to the local laws for regular rental property. Learn how to read an apartment lease here.
Having your rent paid by your employing company might be a dream come true for many folks. However, this does mean that you may have to settle for a relatively lower salary or relocate according to the company’s needs. However, it can all be worth it, especially if you get one of the top 5 apartments in Oakland County with utilities included!
At the end of the day, you have to make sure that your work performance is up to the mark. A company may rent an apartment for a valuable employee, but they will also demand proper input in return. At the same time, you should also ensure retaining the security deposit and making sure there are no complaints from the property owner. Size may also be an issue, so do find out how to maximize space in a small apartment.