Is There a Fringe Benefit Tax? A Primer on De Minimis Rules

The difference between perks, benefits, and fringe benefits can get sticky. Once you think you’ve finally got the difference between them figured out, another term pops up: de minimis benefits.

So, what are de minimis benefits? Are they taxable in the same way that some fringe benefits are? We’ve got some answers to help clear it all up.

What Are De Minimis Benefits?

De minimis benefits (also known as de minimis fringe benefits) are minor employee rewards that  are so small, it’s considered unreasonable or impractical to account for them. Because of this exception, your company doesn’t have to include de minimis benefits under IRS Code section 123(a)(4).

What Counts Under the De Minimis Exception?

The key emphasis for employee rewards here is occasional. Nearly all the amenities below either need to be offered occasionally or used primarily for business purposes. Fringe benefits considered de minimis include:

Food and Entertainment

• Snacks, like coffee, doughnuts, or soda

• Meal money for working overtime

• Tickets for entertainment events

Frequent and higher cost meals have different tax rules, so do your research to determine how to account for those.

Electronics

• Use of a copy machine (employee must use the machine 85% of the time solely for business purposes)

• Cell phone provided by an employer for business purposes

Miscellaneous Gifts

• Holiday gifts under $100 face value (we have some free and low-cost ideas here)

• Flowers, fruit, or books

Supplemental Insurance

• Specifically, group-term life insurance for an employee spouse or dependent, with a face value of under $2,000

We also have a more extensive list that includes which employees are ineligible for these exceptions.

What Doesn’t Count Under the Exception?

Fringe benefits with a higher price tag will not fall under the de minimis umbrella. This is especially true when it comes to taxable items of worth. Here are some examples of what is worth too much to count as a de minimis benefit:

• Cash or cash equivalent

• Gift certificates redeemable for merchandise

• Meal money calculated on business hours worked

• Vacation, meals, and lodging

• Theater or sports tickets

• Securities

Are De Minimis Fringe Benefits Deductible?

While de minimis fringe benefits can be reported, they’re often negligible enough that deducting them as an expense won’t do much to help significantly decrease a business’ end-of-year tax bill.

How Do I Report De Minimis Benefits?

If your fringe benefits fall under the de minimis definition, they are negligible enough that you don’t have to report them. All other fringe benefits are subject to income tax withholding and should be included in the recipient’s W-2 form.