Do you have snacks and coffee in the office for your employees? Have you ever had a workplace event, like a picnic or party? If so, you most likely have given employees de minimis fringe benefits. But, what are de minimis fringe benefits exactly, and are they taxable? Dig into this type of fringe benefit below.
De minimis fringe benefits definition
De minimis fringe benefits are benefits you can give employees that are lower in value and excludable from an employee’s taxable income. According to the IRS, de minimis fringe benefits are so small and rare that accounting for them is unreasonable and impractical.
A “regular” fringe benefit is any monetary benefit an employer offers in exchange for an employee’s work that doesn’t include their salary. Many fringe benefits (excluding de minimis fringe benefits) are taxable.
The IRS has previously determined that items with a value exceeding $100 are not considered de minimis fringe benefits.
Examples of de minimis fringe benefits
So, what perks and expenses are considered to be de minimis benefits? Here are some de minimis fringe benefits examples:
- Occasional use of a photocopier
- Snacks, coffee, doughnuts, etc.
- Some holiday gifts (e.g., holiday ham)
- Occasional meal money or transportation expense for working overtime
- Group-term life insurance for an employee’s spouse or dependent with a face value of no more than $2,000
- Flowers, fruit, books, etc.
- Personal use of a cell phone provided by an employer primarily for business purposes
- Low-value birthday and work anniversary presents for employees
- Company merchandise and swag (e.g., shirts)
- Staff events, such as picnics and small parties
Keep in mind that if a perk or expense exceeds $100, you cannot classify it as a de minimis fringe benefit, so it is taxable.
When determining if something is a de minimis fringe benefit, consider 1. Value and 2. How frequently you give it to an employee. De minimis fringe benefits are less than $100 and are only given occasionally.
Which benefits aren’t considered de minimis?
Depending on the type of benefits, there can be a fine line between what’s considered to be a de minimis benefit and what is not. So, which benefits are not considered de minimis? Let’s take a look:
- Cash or cash equivalent items
- Gift certificates that you can use for “general merchandise” or have a cash equivalent value
- Cash equivalent vouchers that exceed the IRS threshold if $100 and are issued frequently
- Employee discounts
- Sizeable and valuable employee achievement awards
- Season tickets to sporting events or theaters
- Memberships to clubs or gyms
- Some commuter costs
- Personal use of the employer’s assets, including property, boats, or airplanes
Before you decide to count something as de minimis, do your research to make sure you can exclude it from an employee’s taxable income. For more information, check out the IRS’s website.
De minimis benefits in action
To further understand the de minimis employee benefit, let’s take a look at an example in action.
Say you give Sandra a fruit basket for her birthday. You also give another employee, Jacob, a gift card for his work anniversary. Both are worth the same amount ($50). However, only Sandra’s fruit basket is considered a de minimis fringe benefit.
Here’s why: Sandra’s fruit basket does not occur frequently and is under $100. And although Jacob only receives a gift card on special occasions, it is a cash equivalent and must be reported on Form W-2.
De minimis fringe benefits and taxes
When you pay an employee wages, they have to report their earnings on their income tax return. However, employees are not required to report de minimis benefits as taxable income. In short, de minimis fringe benefits are not taxable.
If a benefit is taxable, report the amount on Form W-2 and withhold income and FICA tax (if applicable) from it. You can optionally report any information in box 14 on Form W-2.
Advantages of offering de minimis fringe benefits
Why would an employer want to offer de minimis benefits to employees? Here are a few reasons why:
- Tax-free: True de minimis benefits are tax-free for both the employee and employer due to small face value and infrequency.
- Tax-deductible: Are de minimis fringe benefits deductible? Yes, they are. This means your company can report the money you spend on de minimis fringe benefits as an expense and reduce your year-end tax bill.
- Boosts employee morale: Offering special perks, like parties, snacks, and fruit baskets, can go a long way and keep employees happy.
If your business has taxable fringe benefits, you need to withhold taxes from them. Patriot’s online payroll software will handle the tax calculations for you. And, we offer free, USA-based support. What are you waiting for? Try it for free today!
This is not intended as legal advice; for more information, please click here.