Tax Treatment of Security Services: Protecting Executives and Employees Without the Surprise

It sounds absurd when you think about it: a company hires security to keep its executives and employees safe, and somehow the IRS decides that protection counts as taxable income. Yet that’s the reality under U.S. tax law, where certain employer-provided benefits, especially security, can be treated as personal perks unless they’re carefully documented and reported.

For organizations sending employees or executives into higher-risk situations, security isn’t optional. A company’s duty of care is more than a box to tick, it’s an obligation to protect their people wherever they operate. But if HR, Finance, and Tax teams don’t align on how those services are classified, what begins as a life-and-safety investment can quickly turn into a tax liability for the employee, a compliance risk for the company, and a painful audit that nobody anticipated.

Why Security Creates Compliance Risks

Unlike airfare or temporary housing, security doesn’t fit neatly into the “ordinary business expense” box. Tax authorities want to know: who is truly benefiting? And if it looks like the individual rather than the business, the IRS and global tax authorities are ready to treat it as taxable income.

The IRS has weighed in on this more than once. Under IRC Section 132, certain “working condition fringe benefits” may be excluded from taxable income if they are necessary for the employee to perform their role. The IRS Technical Advice Memorandum 200244004 and Treasury Reg. 1.132-5(m) even outline how employer-provided security can qualify when tied to a proven business need such as documented threats, company policy requirements, or high-profile executive responsibilities.

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But there’s a catch. Without clear documentation, tax authorities often reclassify security as a personal perk. Short-term measures, like hiring a bodyguard for a high-risk trip, are easier to defend as business-related. But longer-term or lifestyle protections (like a home alarm system, an armored vehicle, or ongoing executive protection) are far more likely to be treated as taxable income if the business case isn’t carefully recorded.

And when global moves are involved, the rules get even murkier. The U.K., for example, often views ongoing executive protection as a benefit-in-kind unless it’s clearly tied to work. In Canada, the CRA has similar rules under Income Tax Folio S2-F3-C2, where “personal or living expenses” are taxable unless proven otherwise. What one jurisdiction deems non-taxable may be treated as income somewhere else. Employees who thought they were being protected may face an unexpected tax slip or an inquiry letter from a local authority.

Where Security Tax Mistakes Happen

Even the biggest and most professional companies stumble here, not because of negligence, but because the rules are highly technical and inconsistent across jurisdictions. Common mistakes include:

Treating all security as a perk. Without distinctions between legitimate business necessity and optional personal benefits, companies end up overstating taxable income.

Inconsistent treatment across borders. Security may be mandatory in one country but discretionary in another. Without a framework, discrepancies become red flags in an audit.

Poor documentation. If invoices, approvals, and policies don’t demonstrate business necessity, the default assumption is that costs were personal.

Disconnected teams. HR arranges security, Finance pays invoices, Tax tries to report them. When systems are siloed, errors slip through the cracks.

These mistakes aren’t deliberate; they’re the natural outcome of fragmented processes. And once they happen, the consequences are costly: penalties, back taxes, reputational damage, and eroded trust from employees who feel blindsided by tax treatment they never expected.

Building a Defensible Approach

Security costs don’t have to be a compliance nightmare. With the right framework, companies can protect both their people and their balance sheets. A defensible approach should include:

Visibility: Every dollar spent on security should flow through a single system, giving Finance and Tax teams clarity and eliminating reconciliation headaches.

Defensibility: Establish a documented policy tying protection measures directly to business necessity, supported by threat assessments or company-wide security protocols.

Consistency: Apply the same treatment globally, even when jurisdictions differ, so there’s a clear framework for auditors to review.

Alignment: HR, Finance, and Tax teams must work from the same data and processes rather than trying to piece together separate records after the fact.

Expertise and tools: Global tax rules shift constantly. What is compliant today may not be tomorrow. Without up-to-date systems and external expertise, organizations are left exposed to risks they may not even know exist.

Proper tax treatment of security services doesn’t just satisfy regulators, it creates confidence, proactively manages risk instead of reacting to it, and protects everyone from the employee to the top floor.

How INEO Helps

This is where a global mobility partner like INEO makes all the difference. By combining software, expense management, compensation, and tax services in one platform, INEO brings order and clarity to the murkiness of security tax treatment.

Security-related costs are tracked in one place, reducing errors and eliminating fragmented invoices.

Documentation is standardized, so when auditors ask for justification, organizations can provide defensible records tied to policies and necessity.

HR, Finance, and Tax teams operate from a shared source of truth, eliminating the disconnects that so often lead to inconsistencies.

Employees benefit from consistent, predictable treatment. No surprise tax slips undermining their confidence.

Partnering with the right global mobility partner doesn’t just reduce audit risk, it demonstrates a proactive duty of care while staying financially responsible. Security remains what it should be: a safeguard for talent, not a hidden tax trap.

Stay Secure with INEO

Security is non-negotiable. But the tax treatment of security services is complex enough to expose even the most prepared organizations to unnecessary financial and compliance risk. The reality is that laws like IRC 132 in the U.S., and parallel regulations in the U.K. and Canada, make professional documentation and consistent policy non-optional.

With over 30 years in global mobility and tax, INEO helps companies protect their people while applying the right tax treatment, streamlining expenses, and ensuring compliance across every move. With an all-in-one mobility platform and expert services spanning expense management, compensation, and tax, INEO simplifies complexity and keeps you compliant wherever your company operates.

More than a platform. Your partner in progress. With INEO, your security is protection, for your employees and your company. Learn more.

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