De minimis fringe benefits are a non-wage compensation method that businesses have used for decades. Do you notice your team members losing momentum due to workflow changes or increasing work responsibilities? Learn what de minimis fringe benefits are and how they can have a positive impact on your organization and employees.
What Are De Minimis Fringe Benefits?
De minimis fringe benefits are infrequently distributed and in amounts so small that the organization's accounting department does not have to report them. When tax season starts, these benefits are not taxed because they are not considered to have a high face value by the Internal Revenue Service (IRS).
The IRS has ruled in the past that amounts over $100 should not qualify for de minimis status. Here are some of the most common examples of de minimis fringe benefits:
- Holiday presents
- Cocktail parties
- Occasional snacks
- Birthday presents
- Gift baskets/books
- Educational assistance
- Tickets for entertainment events
- Personal use of employer equipment
- Transport and food allowances for overtime working
How Are De Minimis Fringe Benefits Reported On Taxes?
When an employee is paid, they have to report their personal income on their income tax return. However, when an employee is awarded a de minimis fringe benefit, reporting is not essential on tax forms.
These fringe benefits are considered tax-free fringe benefits. The two essential qualifying characteristics for a de minimis fringe benefit are:
- The fringe benefit cannot have a high face value.
- It must be a type of compensation that does not occur often.
Top 3 Advantages Of Offering De Minimis Fringe Benefits
Here are the top three advantages you can get by employing the use of de minimis fringe benefits:
1. It is tax-free
De minimis fringe benefit are tax-free for both the organization and the employee. It is not necessary to report it as compensation on tax returns. It can help minimize accounting costs for your business while also keeping your employees happy.
2. It is tax-deductible
De minimis fringe benefits are also tax-deductible. That means that businesses can report the money spent on these fringe benefits as an expense. It can help businesses reduce their end-of-year tax bill while providing benefits for their employees.
3. It allows small businesses to compete for star employees
De minimis fringe benefits are a great way to help improve employee satisfaction, especially if awarded due to high-performance as recognition of hard work. Use these benefits as part of your toolkit for keeping employees feeling cared for, recognized, and appreciated by your company, and they will be more likely to stick around.
The Importance Of Frequency
Because of the gray areas included in the definition of de minimis fringe benefits,businesses might be reluctant to utilize them. Becoming familiar with de minimis guidelines will help you stay away from IRS tax concerns. Don't let the unknown stop you from utilizing this fringe benefit.
Minimis-fringe beginners will want to understand the importance of frequency and how it plays an essential role in the tax-deductible and tax-free nature of this benefit. If you plan to give these benefits regularly, you risk toeing the line of whether or not these benefits are considered de minimis fringe benefits.
Takeaway
If you still don't feel comfortable assessing whether or not specific gifts are considered de minimis, you should seek professional help. Your accounting firm will answer your questions clearly and resolve your doubts. If you don't have an accounting firm you usually work with, you can contact the IRS directly with any questions.
