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Title 26 — Internal Revenue CodeRelease 119-73

§4977 Tax on certain fringe benefits provided by an employer

Title 26 › Subtitle Subtitle D— - Miscellaneous Excise Taxes › Chapter CHAPTER 43— - QUALIFIED PENSION, ETC., PLANS › § 4977

Last updated Apr 6, 2026|Official source

Summary

Employers who choose this option must pay a tax equal to 30 percent of their "excess fringe benefits" for that calendar year. "Excess fringe benefits" means the total value of fringe benefits the employer gave that were not counted as taxable income under section 132(a)(1) and (2), minus an amount equal to 1 percent of the total compensation the employer paid that year that was counted as taxable income. The choice applies to the year picked and all later years until the employer cancels it. Employees treated as working for one employer under section 414(b), (c), or (m) are treated as one employer here. The rule generally covers only work in the United States unless regulations say otherwise.

Full Legal Text

Title 26, §4977

Internal Revenue Code — Source: USLM XML via OLRC

(a)In the case of an employer to whom an election under this section applies for any calendar year, there is hereby imposed a tax for such calendar year equal to 30 percent of the excess fringe benefits.
(b)For purposes of subsection (a), the term “excess fringe benefits” means, with respect to any calendar year—
(1)the aggregate value of the fringe benefits provided by the employer during the calendar year which were not includible in gross income under paragraphs (1) and (2) of section 132(a), over
(2)1 percent of the aggregate amount of compensation—
(A)which was paid by the employer during such calendar year to employees, and
(B)was includible in gross income for purposes of chapter 1.
(c)If—
(1)an election under this section is in effect with respect to an employer for any calendar year, and
(2)at all times on or after January 1, 1984, and before the close of the calendar year involved, substantially all of the employees of the employer were entitled to employee discounts on goods or services provided by the employer in 1 line of business,
(d)An election under this section shall apply to the calendar year for which made and all subsequent calendar years unless revoked by the employer.
(e)All employees treated as employed by a single employer under subsection (b), (c), or (m) of section 414 shall be treated as employed by a single employer for purposes of this section.
(f)Except as otherwise provided in regulations, this section shall apply only with respect to employment within the United States.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Amendments

1996—Subsec. (c). Pub. L. 104–188 substituted “section 132(h)” for “section 132(i)(2)” in closing provisions. 1993—Subsec. (c). Pub. L. 103–66 substituted “section 132(i)(2)” for “section 132(g)(2)” in closing provisions. 1986—Subsec. (c)(2). Pub. L. 99–514, § 1853(c)(1), amended par. (2) generally. Prior to amendment, par. (2) read as follows: “as of January 1, 1984, substantially all of the employees of the employer were entitled to employee discounts or services provided by the employer in 1 line of business,”. Subsec. (f). Pub. L. 99–514, § 1853(c)(2), added subsec. (f).

Statutory Notes and Related Subsidiaries

Effective Date

of 1993 AmendmentAmendment by Pub. L. 103–66 applicable to reimbursements or other payments in respect of expenses incurred after Dec. 31, 1993, see section 13213(e) of Pub. L. 103–66, set out as a note under section 62 of this title.

Effective Date

of 1986 AmendmentAmendment by Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.

Effective Date

Section effective Jan. 1, 1985, see section 531(h) of Pub. L. 98–369, set out as a note under section 132 of this title. Plan

Amendments

Not Required Until January 1, 1989For provisions directing that if any

Amendments

made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title. Application of Subsection (c) of this Section to Agricultural Cooperatives Incorporated in 1964 Pub. L. 99–514, title XVIII, § 1853(c)(3), Oct. 22, 1986, 100 Stat. 2871, provided that: “For purposes of determining whether the requirements of section 4977(c) of the Internal Revenue Code of 1954 [now 1986] are met in the case of an agricultural cooperative incorporated in 1964, there shall not be taken into account employees of a member of the same controlled group as such cooperative which became a member during July 1980.”

Reference

Citations & Metadata

Citation

26 U.S.C. § 4977

Title 26 — Internal Revenue Code

Last Updated

Apr 6, 2026

Release point: 119-73