What is the Economic Benefit Theory?

Under the economic benefit theory, an employee is currently taxable whenever he receives something of value that is the equivalent of cash. In other words, if a compensation arrangement provides a current economic benefit to an employee, the employee must include the value of the benefit in income, even if there is no current right to receive cash or other property. The employee need only receive the equivalent of cash—something with a current, real, and measurable value–from his employer. As soon as such an event occurs, even if the employee cannot currently take possession of either the asset or the income it produces, he is taxable on the value of the benefit.

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Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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