Employer-provided lodging on business premises explained.

The three tests

Publication 15-B (2026) says 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; and the employee must accept it as a condition of employment. The publication notes that different tests may apply to lodging furnished by educational institutions and points to section 119(d) of the Internal Revenue Code.

If you allow the employee to choose to receive additional pay instead of lodging, then the lodging, if chosen, is not excluded. The exclusion also does not apply to cash allowances for lodging. That is the first thing to check in any housing stipend arrangement: a stipend is cash, not furnished lodging.

On your business premises

For this exclusion your business premises is generally your employee’s place of work. The publication’s example: if you are a household employer, lodging furnished in your home to a household employee is considered furnished on your business premises. It also refers to section 119(c) of the Code and its regulations for special rules on lodging in a camp located in a foreign country.

For your convenience

Whether lodging is furnished for your convenience depends on all the facts and circumstances. You furnish it for your convenience if you do so 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. A written statement that the lodging is furnished for your convenience is not sufficient. The same convenience standard is used for the meals exclusion; see the free meals page.

Condition of employment

Lodging meets this test if you require your employees to accept it because they need to live on your business premises to be able to properly perform their duties. The publication gives two types: employees who must be available at all times, and employees who could not perform their required duties without being furnished the lodging. It does not matter whether you must furnish the lodging as pay under an employment contract or a law fixing the terms of employment.

The two IRS examples

Qualifying. You employ Sam at a construction project at a remote job site in Alaska. Because facilities for employees to obtain lodging are inaccessible and weather conditions are prevailing, you furnish lodging at the site to carry on the project, and you require employees to accept it as a condition of employment. You may exclude the lodging from Sam’s wages. Because sufficient eating facilities are not available nearby, you may also exclude the meals you provide to Sam from his wages.

Not qualifying. A hospital gives Joan the choice of living at the hospital free of charge, or living elsewhere and receiving a cash allowance on top of her regular salary. If Joan chooses to live at the hospital, the hospital cannot exclude the value of the lodging, because she is not required to live there to properly perform her duties.

Note how the second example fails on the third test and on the choice rule at the same time: she may pick pay instead, and the housing is not necessary to her duties.

Meals with lodging

Meals furnished on days the employee is not working generally cannot be excluded, but the publication allows the exclusion if the meals are furnished with lodging that is itself excluded from wages. That is why on-site housing arrangements, such as a remote work camp or a staff residence, often take meals out of wages too. See Meals on Your Business Premises in the publication for the rest of the meal rules.

S corporation shareholders and employment taxes

For this exclusion do not treat a 2% shareholder of an S corporation as an employee. A 2% shareholder is someone who directly or indirectly owns, on any day of the tax year, more than 2% of the stock or more than 2% of the voting power; the shareholder is treated as a partner for fringe benefit purposes, without treating the benefit as a reduction in distributions. Table 2-1 shows qualifying lodging as exempt from income tax withholding, social security and Medicare, and FUTA, with a footnote that the exemption does not apply to S corporation employees who are 2% shareholders.

What happens when a test fails

Lodging that fails any test is a taxable fringe benefit. Its value is its fair market value under the general valuation rule: the amount the employee would pay a third party in an arm’s-length transaction, determined from all the facts and circumstances, and neither the employee’s opinion of value nor your cost decides it. The taxable value, less anything the employee paid, is included in boxes 1, 3 and 5 of Form W-2. Whether the value of a particular arrangement is excluded can turn on facts the publication does not list, so a payroll provider or tax professional should review any housing arrangement before the first pay period.

Pub 15-B fringe benefits at a glance

Other pages in this set

De Minimis Benefits, Achievement Awards, Educational Assistance ($5,250), Dependent Care Assistance, Adoption Assistance, Meals on Business Premises, No-Additional-Cost Services, Cents-per-Mile Valuation Rule, Cafeteria Plan, Working Condition Fringe.

Sources

• IRS Publication 15-B (2026), Employer’s Tax Guide to Fringe Benefits: section 2, Lodging on Your Business Premises; Table 2-1; section 4 reporting. Page last reviewed April 30, 2026. Read November 2, 2026.

Every dollar figure on this page is a 2026 figure from the publication unless a different year is stated. The IRS can change a publication at any time, and the publication, your plan documents and a payroll professional control over this page. This page restates the publication and does not extend it to facts it does not address.