Tax implications of a UK company (owner of my US employer) paying for my rent in the US?

Question

Let me get right to the chase.

Situation: My employer offered to pay for my rent, giving me a few options to consider, and I'm not sure of the tax implications for each.

Details: I live in Florida and work remotely from my apartment. My employer has two entities, one in US and a main one in UK (a UK permanent establishment).

The US entity is the one employing me under a W-2 and the UK entity is the one that would be paying for my apartment. They are generally open to doing any of the following (pending discussion):

1. They pay for the apartment directly (but have my name on the lease)
2. I pay for the apartment by they expense my rent
3. They sign the lease and pay for the apartment

They're also open to other options if I have any suggestions.

Questions:

1. It is my understanding that fringe benefits such as rent payments are generally taxable as income. How does this work if the entity paying for my apartment is based in the UK and is paying taxes in the UK on those payments?
2. Does the answer for above differ for any of the three options I listed?
3. Is there another option beyond the three I listed that is beneficial for me, tax-wise, and that I could propose to my employer?
4. Does the Lodging on Your Business Premises exclusion work in some cases, in particular if the employer rents the apartment as a Florida office?

Thanks everyone!

Answer 1

Does the Lodging on Your Business Premises exclusion work in some cases, in particular if the employer rents the apartment as a Florida office?

according to the IRS: Publication 15-B (2021), Employer's Tax Guide to Fringe Benefits

(note this is written from the view of the employer)

You can exclude the value of lodging you furnish to an employee from the employee's wages if it meets the following tests.

• It is furnished on your business premises.
• It is furnished for your convenience.
• The employee must accept it as a condition of employment.

On your business premises.

For this exclusion, your business premises is generally your employee's place of work. For example, if you're a household employer, then lodging furnished in your home to a household employee would be considered lodging furnished on your business premises. For special rules that apply to lodging furnished in a camp located in a foreign country, see section 119(c) of the Internal Revenue Code and its regulations.

For your convenience.

Whether or not you furnish lodging for your convenience as an employer depends on all the facts and circumstances. You furnish the lodging to your employee for your convenience if you do this for a substantial business reason other than to provide the employee with additional pay. This is true even if a law or an employment contract provides that the lodging is furnished as pay. However, a written statement that the lodging is furnished for your convenience isn't sufficient.

Condition of employment.

Lodging meets this test if you require your employees to accept the lodging because they need to live on your business premises to be able to properly perform their duties. Examples include employees who must be available at all times and employees who couldn't perform their required duties without being furnished the lodging.

Lets assume that you can meet the third test.

The problem for you will be the 2nd test. If you quit, will the new employee have to live in that exact apartment/building? If not then you would fail this test.

from the same document:

Example of nonqualifying lodging.

A hospital gives Joan, an employee of the hospital, the choice of living at the hospital free of charge or living elsewhere and receiving a cash allowance in addition to her regular salary. If Joan chooses to live at the hospital, the hospital can't exclude the value of the lodging from her wages because she isn't required to live at the hospital to properly perform the duties of her employment.

My reading of this section is that your living location isn't linked to where your company needs you to be.

Answer 2

It is my understanding that fringe benefits such as rent payments are generally taxable as income.

The incredibly simple answer is, of course: it makes utterly no difference who pays you.

It will be taxed.

Say you came on here and asked "I will be getting paid - but!! from someone!! in!! Antartica!! Will the IRS let me off?!!"

It's just completely ridiculous. Note that when you report that income (i.e. the rent benefit) you won't even "tell" the IRS what country it came from. It's just income.

It's that simple.

The whole scheme is incredibly bizarre, and it's bizarre the company suggested it.

Yes the UK company could pretend it is an office.

You'd then go to jail for tax evasion, because you're be pretending it's an office but it's actually just income (i.e., a free home).

A much simpler idea is: have them send you money, and don't bother reporting it as income.

It's exactly as illegal.

Honestly, none of these schemes work - "the IRS has thought of that".

To cut to the chase, it is totally ridiculous any serious company would suggest this, a remarkable waste of your time.