As the demand for skilled labor grows across industries, employers are looking for creative ways to support and retain trades workers — from electricians to machinists to HVAC techs. One lesser-known but powerful tool in the tax code is Internal Revenue Code (IRC) §132, which allows employers to offer certain tax-free fringe benefits to employees.
While not specific to trades alone, Section 132 includes key provisions that are especially relevant for employers of skilled workers, particularly when it comes to training, tools, and equipment required for the job.
Section 132 allows certain fringe benefits to be excluded from an employee’s taxable income, provided they meet the IRS definition of:
In the context of skilled trades, the most useful is the working condition fringe.
A working condition fringe benefit is any property or service provided to an employee that would be deductible as a business expense if the employee had paid for it themselves.
In other words, if a tradesperson needs something to perform their job — and would normally deduct it on their taxes — the employer can instead provide it directly, and it will be non-taxable to the employee under §132.
| Benefit | Tax Treatment | Notes |
|---|---|---|
| Employer-paid licensing or certification fees | Tax-free under §132 | Must be job-related |
| Continuing education or recertification | Tax-free | As long as it maintains/improves job skills |
| Tools or equipment required for the job | Tax-free | Cannot be personal-use items |
| Safety gear (gloves, helmets, boots, etc.) | Tax-free | Must be necessary for the job |
| Job-specific uniforms | Tax-free | Only if not suitable for everyday wear |
| Employer-provided cell phones or devices | Tax-free | Must be primarily for business use |
✅ Example: An electrical contractor buys $600 worth of specialized testing tools for a technician to use on the job. The employee does not pay tax on this benefit — it qualifies under §132 as a working condition fringe.
While Section 127 covers formal educational assistance (like trade school tuition), Section 132 covers practical, on-the-job expenses related to current job functions.
| Provision | Covers | Annual Limit | Written Plan Required? |
|---|---|---|---|
| §127 | Tuition, fees, books | $5,250 | Yes |
| §132 | Tools, certifications, training, safety gear | No specific limit | No (but documentation is key) |
Together, §127 and §132 provide a well-rounded approach to supporting employees' education and day-to-day needs without increasing their tax burden.
Section 132 is a flexible and underused tool for employers in the skilled trades. From certification costs to job-specific tools and equipment, offering non-taxable working condition fringe benefits helps reduce employee out-of-pocket expenses and boosts morale — all without increasing taxable wages.
For employers competing for talent in the trades, it’s another way to stand out — and do right by the workers who keep the country running.
