U.S. · Employer fringe benefits
No-additional-cost services explained.
Excess-capacity perks such as airline seats and hotel rooms, who counts as an employee, and the highly compensated limit.
A no-additional-cost service is a service you offer to customers in the line of business where the employee works, and that you provide to the employee without incurring any substantial additional cost. Typical examples are excess-capacity airline, bus or train tickets, hotel rooms and telephone services. The value is generally excluded from wages. Lost revenue counts as a cost.
Compare Pub 15-B fringe benefits
Result
What the publication says
Publication 15-B (2026) says this exclusion applies to a service you provide to an employee if it does not cause you to incur any substantial additional costs. The service must be offered to customers in the ordinary course of the line of business in which the employee performs substantial services. The publication describes no-additional-cost services as excess capacity services, such as airline, bus or train tickets, hotel rooms, or telephone services provided free, at a reduced price, or through a cash rebate to employees working in those lines of business.
Services that are not excess capacity, for example a stock brokerage firm facilitating an employee’s purchase of stock, do not fit. The publication adds that they may still be eligible for a qualified employee discount of up to 20% of the value of the service provided; see its Employee Discounts discussion.
How to decide whether the cost is “substantial”
The publication gives the rules for the cost test. To decide whether you incur a substantial additional cost, count any lost revenue as a cost. Do not reduce the costs you incur by any amount the employee pays for the service. You are treated as incurring a substantial additional cost if you or your employees spend a substantial amount of time providing the service, even if that time would otherwise be idle or the service is provided outside normal business hours.
Its example: a commercial airline lets employees take personal flights at no charge and receive reserved seating. Because the employer gives up potential revenue by allowing employees to reserve seats, the free flights do not qualify for the no-additional-cost exclusion.
Reciprocal agreements
A no-additional-cost service provided to your employee by an unrelated employer can qualify if all three tests are met: the service is the same type generally provided to customers in both the line of business where the employee works and the line of business where the service is provided; you and the other employer have a written reciprocal agreement under which a group of employees of each, all of whom perform substantial services in the same line of business, may receive no-additional-cost services from the other; and neither of you incurs any substantial additional cost, including lost revenue, either in providing the service or because of the written agreement.
Who counts as an employee
For this exclusion the publication treats these as employees: a current employee; a former employee who retired or left on disability; a surviving spouse of an individual who died while an employee; a surviving spouse of a former employee who retired or left on disability; a leased employee with at least a year of substantially full-time service under your primary direction or control; and a partner who performs services for a partnership.
Services you provide to the spouse or dependent child of an employee are treated as provided to the employee. For this benefit, a dependent child is a child or stepchild who is the employee’s dependent or who, if both parents are deceased, has not reached age 25; a child of divorced parents is a dependent of both parents. Any use of air transportation by the parent of an employee is treated as use by the employee, but that parent rule does not apply to the parent of a person who is an employee only because of the retired, disabled or surviving-spouse categories.
Highly compensated employees
You cannot exclude from the wages of a highly compensated employee the value of a no-additional-cost service that is not available on the same terms to all of your employees, or to a group defined under a reasonable classification you set up that does not favor highly compensated employees. For 2026 a highly compensated employee is someone who was a 5% owner at any time during the year or the preceding year, or who received more than $160,000 in pay for the preceding year; the pay test may be ignored if the employee was not also in the top 20% by pay for the preceding year. Table 2-1 carries the same footnote: the exemption does not apply to certain highly compensated employees under a program that favors those employees.
Employment taxes and reporting
Table 2-1 shows no-additional-cost services as exempt from income tax withholding, social security and Medicare, and FUTA. You can generally exclude the value from wages, so nothing is reported on Form W-2 for a qualifying service. A service that fails the test is a taxable fringe benefit valued at fair market value, with the value (less anything the employee paid) included in boxes 1, 3 and 5. The valuation rules are in section 3 of the publication; the general rule is the amount an employee would have to pay a third party in an arm’s-length transaction.
Employee discounts: the next rung down
When a benefit fails the no-additional-cost test, check whether it is a qualified employee discount instead. The publication describes that exclusion as a price reduction on property or services you offer to customers in the ordinary course of the line of business in which the employee performs substantial services. It does not apply to discounts on real property, or on personal property of a kind commonly held for investment such as stocks or bonds, or to a line of business where the employee does not provide substantial services, or to items not offered for sale to customers. Discounts provided by another employer through a reciprocal agreement are not excluded under the discount rule. For the cost side of a free vehicle benefit see the cents-per-mile page.
Pub 15-B fringe benefits at a glance
| Benefit | 2026 limit or test, per Pub 15-B | Reporting, per Pub 15-B |
|---|---|---|
| De Minimis Benefits | No general dollar cap. Test is value and frequency. Specific figures: $21 a month for discounted transit passes; $2,000 face amount of spouse or dependent group-term life; 85% business use for a copier. | Excluded benefits are not included in wages. Cash and cash equivalents are always taxable and go in boxes 1, 3 and 5 of Form W-2. |
| Achievement Awards | $1,600 a year for qualified plan awards ($400 for awards that are not qualified plan awards). Tangible personal property for length of service or safety only. | Value above the allowable deduction is included in wages (boxes 1, 3, 5). Excluded value is not reported. |
| Educational Assistance ($5,250) | $5,250 a year per employee under a written educational assistance program. Includes qualified student loan payments made after March 27, 2020. | Amounts over $5,250 are included in wages (boxes 1, 3, 5) unless they are working condition benefits. |
| Dependent Care Assistance | $7,500 a year ($3,750 if married filing separately), not more than the smaller of the employee’s or spouse’s earned income. | Report all dependent care assistance in Form W-2 box 10, including the part over $7,500; the excess is also in boxes 1, 3 and 5. |
| Adoption Assistance | $17,670 exclusion for 2026. Excluded from income tax withholding, but taxable for social security, Medicare and FUTA. | Report all qualifying adoption expenses paid or reimbursed, including amounts over the exclusion, in Form W-2 box 12 with code T. |
| Meals on Business Premises | No dollar limit. Test: furnished on business premises and for the employer’s convenience. 2% S corporation shareholders are not treated as employees. | Excluded meals are not reported. Meals that fail the test are included in wages (boxes 1, 3, 5). |
| No-Additional-Cost Services | No dollar limit. Test: excess-capacity service in the employee’s own line of business with no substantial additional cost (lost revenue counts). | Excluded services are not reported. Highly compensated employees lose the exclusion if the service is not offered on the same terms to all or a nondiscriminatory group. |
| Cents-per-Mile Valuation Rule | Personal miles x the IRS standard mileage rate. Allowed if regularly used in business (50% safe harbor) or driven 10,000+ miles a year primarily by employees. Not allowed above the maximum automobile value. | Include the value in wages (boxes 1, 3, 5) or have the employee reimburse it. |
| Cafeteria Plan | Health FSA salary reduction limit of $3,400 for plan years beginning in 2026. No dollar limit on the plan itself; each benefit has its own exclusion. | Benefits that are not qualified, or that favor highly compensated or key employees, are included in wages (boxes 1, 3, 5). Qualified benefits keep their own reporting rules. |
| Working Condition Fringe | No dollar limit. Excluded to the extent the employee could have deducted the cost as a business or depreciation expense, with substantiation. | Excluded value is not reported. Independent contractors and directors have extra exceptions (product testing, parking). |
| Lodging on Business Premises | No dollar limit. All three tests: on business premises, for employer convenience, condition of employment. 2% S corporation shareholders are not treated as employees. | Excluded lodging is not reported. Lodging that fails any test is included in wages (boxes 1, 3, 5). |
Other pages in this set
De Minimis Benefits, Achievement Awards, Educational Assistance ($5,250), Dependent Care Assistance, Adoption Assistance, Meals on Business Premises, Cents-per-Mile Valuation Rule, Cafeteria Plan, Working Condition Fringe, Lodging on Business Premises.
Sources
- IRS Publication 15-B (2026), Employer’s Tax Guide to Fringe Benefits: section 2, No-Additional-Cost Services; 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.
Frequently asked questions
What is a no-additional-cost service?
A service offered to customers in the line of business where the employee works that you provide to the employee without incurring any substantial additional cost, such as excess-capacity airline tickets or hotel rooms.
Does lost revenue count as a cost?
Yes. Publication 15-B says to count lost revenue as a cost, so a free flight with reserved seating does not qualify.
Does it cover an employee’s family?
Services you provide to an employee’s spouse or dependent child are treated as provided to the employee. Use of air transportation by an employee’s parent is treated as use by the employee.
Are there dollar limits?
No dollar limit appears in the publication for this exclusion. The tests are the type of service and the cost.
What if a highly compensated employee gets a better deal?
The exclusion is lost for that employee if the service is not available on the same terms to all employees or a nondiscriminatory classification.
Not tax or legal advice
This page summarizes IRS Publication 15-B and is not tax, legal or financial advice. Whether a benefit is excluded depends on your plan terms and facts. A CPA, enrolled agent, payroll provider or tax attorney can confirm what applies to you. Everything runs in your browser; nothing you enter is sent anywhere.