De Minimis Fringe Benefits
Posted on Wednesday, November 23, 2011
A de minimis benefit is one that, considering its value and the frequency with which it is provided, is so small it to makes accounting for it unreasonable or impractical. These benefits are excluded from an employee’s income under IRS code section 132(a)(4). Items that are considered de minimis include:
- Controlled, occasional employee use of photocopierOccasional snacks, coffee, doughnuts, etc.
- Occasional tickets for entertainment events
- Holiday gifts
- Occasional meal money or transportation expense for working overtime
- Group-term life insurance for employee spouse or dependent with face value not more than $2,000
- Flowers, fruit, books, etc., provided under special circumstances
- Cell phones provided for noncompensatory business reasons
A benefits frequency and its value should always be considered when determining whether a benefit is de minimis. A de minimis benefit is usually always given infrequently. It also must not be a form of disguised compensation.
Cash is generally intended as a wage, and usually provides no administrative burden to account for. Cash therefore cannot be a de minimis fringe benefit.
The one exception to this rule is giving an employee occasional meal or transportation money to enable him/her to work overtime. The benefit must be provided so that employee can work an unusual, extended schedule. The benefit is not excludable for any regular scheduled hours, even if they include overtime. The employee must actually work the overtime.
Meal money calculated on the basis of number of hours worked is not de minimis and is taxable wages.
Gift Certificates/Gift Cards
Cash or cash equivalent items provided to an employee by the employer are never excludable from income, except as noted above. Gift certificates that are redeemable for general merchandise or have a cash equivalent value are not de minimis benefits and are taxable as wages to the employee.
A gift certificate/gift card that allows an employee to receive a specific item of personal property that is minimal in value, provided infrequently, and impractical to account for, may be excludable as a de minimis benefit, depending on facts and circumstances.
Special rules apply to allow exclusion from employee wages of certain employee achievement awards of tangible personal property given for length of service or safety. These awards
- Cannot be disguised wages
- Must be awarded as part of a meaningful presentation
- Cannot be cash, cash equivalent, vacation, meals, lodging, theater or sports tickets, or securities.
In addition, there are other requirements specific to achievement and safety awards and there are dollar limitations that must be met. See the Taxable Fringe Benefits Guide or Publication 535 for more information.
How are de minimis fringe benefits reported?
If the benefits qualify for exclusion from wages, no reporting is necessary. If they are taxable wages, they should be included on Form W-2 and subject to income tax withholding. If the employees are covered for social security and Medicare, the value of the benefits is subject to withholding for these taxes also. You may optionally report any information in box 14 of Form W-2.
Keep these rules in mind when considering gifts or bonuses for your employees and volunteers.
Posted by: Susan Berghoff, CPA
Posted in Mission Minded Nonprofits
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