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:

• an individual currently employed by you
• an individual who stopped working for you because of retirement or disability
• a surviving spouse of an individual who died while working for you or who stopped working for you because of retirement or disability
• a partner who performs services for your partnership

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.