This fringe benefit arises when you provide your employees (or their spouses or dependent children) with a service that you provide to your customers or clients in your regular line of business. For example, an airline may allow its employees to fly for free when there are empty seats on a plane, or a hotel chain may allow its employees to use rooms that would otherwise be empty.
For these purposes, the term employee includes:
This benefit is nontaxable to employees as long as you don't incur any
substantial additional costs to provide the service to your employees.
Additional costs usually include the cost of labor, materials, and supplies.
Keep in mind — if additional costs are incurred, the cost of the entire
service is taxable, not just the added costs.