What Are De Minimis Fringe Benefits? Your Top Questions Answered

What exactly are de minimis benefits, and how do they impact the business and your employees?

4
 min. read
January 6, 2022
Group of women laugh together while working on a large brown table

Employee benefits of any size, including de minimis fringe benefits, are a great way to show your workforce how much you value them.  

As part of the pay package you offer, benefits increase employee retention and motivation, which is particularly important in today’s competitive hiring landscape. Of course, there’s also the bonus that these add-ons reduce your company’s overall tax obligation. 

So, what exactly are de minimis benefits, and how do they impact the business and your employees? We answer your top questions on the subject below. 

What Are De Minimis Fringe Benefits?

According to the IRS, de minimis fringe benefits are employee benefits that are so small and rare that accounting for them is unreasonable and somewhat impractical. 

In Latin, de minimis means minimal. Previously, the IRS ruled that any items above $100 fall outside the scope of de minimis, regardless of the circumstances. 

From an administrative point of view, these benefits are not recorded as part of your employee’s total pay package. Therefore, your employees are not taxed on them. 

For these perks to qualify as de minimis, they must be infrequent and of low value. Also, they cannot be a form of compensation that the business is trying to pass under the radar. 

What Counts as a De Minimis Fringe Benefit?

Think of those occasional Fridays when you arrange free snacks, coffee, or donuts for the office. Or when your sales team has to work overtime, and you need to issue meal vouchers. 

These perks are considered de minimis benefits as they are all occasional, small expenses for the business.

Other examples the IRS recognizes as de minimis include: 

  • Occasional personal use of the office photocopier
  • Adhoc meals or snacks for the office
  • Coffee and refreshments that are provided on company premises
  • Odd tickets for entertainment purposes, including movies, theatre, or sporting events
  • Low-value gifts for holidays or occasions such as birthdays, work anniversaries, thanksgiving, or Christmas
  • Employee meals
  • Occasional overtime money for meals or transport that are central to the employee’s ability to carry out the work
  • Group-term life insurance for your employee’s spouse or dependent, provided the value does not exceed $2,000
  • Occasional SWAG items, including branded company merchandise such as t-shirts or mugs
  • Gifts such as flowers, books, or fruit baskets provided on company property or under special circumstances (such as an illness)
  • Staff events, such as picnics or small parties that occur occasionally
  • Infrequent personal use of a landline or cell phone that the employee is meant to use mainly for business functions

These are great examples of lower-value benefits your organization might offer as part of its competitive employment package. Color in the lines carefully, though, as there are grey areas in what is and isn’t considered minimal.  

Which Benefits Are Not Considered De Minimus?

As we just found out, any perks that are frequent, of a considerable value, and form a part of an employee’s compensation do not qualify as de minimis fringe benefits. 

Besides those, the following items cannot be classified as de minimis, even though some fall relatively close to the proverbial tree:

  • Cash benefits provide no administrative burden to account for and therefore cannot be considered de minimis
  • Gift certificates or cash-equivalent vouchers that exceed the allowable value threshold and are issued frequently
  • Employee discounts
  • Sizeable and valuable employee achievement awards
  • Season tickets to sporting events or theatres
  • Memberships to clubs or gyms
  • Specific commuter costs
  • Personal use of the employer’s assets, including property, boats, or airplanes

How Are De Minimis Fringe Benefits Taxed?

As a general rule, your employees are required by law to report their total pay and benefits when submitting their taxes. This then impacts their overall income tax declaration. 

However, they are not required to report anything that falls under the umbrella of de minimis. 

Why Offer De Minimis Benefits To Employees?

The working world is moving towards a mindset that encourages competitive rewards systems. This means that top talent seeks out appealing pay packages, which, in turn, enable and motivate them to give their all to the job. Businesses that fall short in this regard might risk losing their employees to their competitors who do better. 

Key Takeaways

Offering perks and de minimis fringe benefits to your employees isn’t just about the tax deduction for your company. It’s a strategic business decision that benefits everyone involved. When your staff are happy and fulfilled, they’re more likely to do great work, ultimately boosting your bottom line.