[MD Expat in PA]

If I pay my CFO $60,000/year less than the market rate for his services, and give him the free use of a $5,000/month apartment at the company’s expense, I’m still paying the $60,000 every year — aren’t I?

Yes and no. In total you are giving the executive the same amount of “compensation” but not reporting the $5,000 per month apartment on the employee’s W2, means no income tax was withheld, the wages were not reported so there is no impetus for the employee to self-report and pay taxes on it, and the employer gets out of paying the employer’s share of FICA, etc.

[Alberta's Child]

P.S. … Maybe the tax laws and regulations have changed, but I have regularly received “non-cash” income in the past from employers — premiums for group life and disability insurance, for example. These were always reported on my W-2 form after the end of every year, but I don’t recall ever paying any payroll taxes on any of them.

And I was always under the impression that the employer reports these forms of compensation on a W-2 not to help the IRS ensure compliance, but to let the employee know the exact amount of the non-cash compensation. If my employer hadn’t given me a W-2 form with the insurance premiums listed, I never would have known how much the company had actually paid for those things.