MLR

How minimal are fringe benefits that aren’t taxable?

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If you provide a fringe benefit to an employee as a form of pay, it’s taxable, right?

Maybe.

De minimis, or minimal, fringe benefits are excluded from the employee’s gross income. A de minimis fringe benefit is any property or service whose value is so small that accounting for it is unreasonable or administratively impracticable.

There are two main reasons a property or service would not qualify as a “de minimis” fringe benefit:

  • It is provided too frequently.
  • It is too valuable.

An example is a meal provided by an employer every day for one employee but not for any of the employer’s other employees. This benefit is not a de minimis fringe benefit with respect to the one employee who is receiving the free employer-provided meals.

The benefit is provided too frequently to one particular employee. Therefore, it does not qualify even though the value is small and infrequent with respect to the employer’s work force.

In cases in which it is difficult to determine the frequency on an individual basis, the frequency is determined on a group basis.

When considering a de minimis fringe benefit and employee office equipment usage, there is a general rule regarding the use of the office copy machine. If the company maintains adequate control over the machine so that 85 percent of the use of the machine is for business purposes, any personal use of the copy machine by particular employees is considered a de minimis fringe benefit – even for an individual who makes many copies.

The following are some examples of de minimis fringe benefits:

  • Occasional typing of personal letters by a company secretary
  • Occasional cocktail parties, group meals or picnics for employees or their guests
  • Traditional birthday or holiday gifts of property with a low fair market value
  • Occasional theater or sporting event tickets
  • Snacks, such as coffee, doughnuts and soft drinks
  • Local telephone calls, or personal use of an employer-provided cell phone provided for noncompensatory business purposes
  • Flowers, fruit, books or similar property provided to employees under special circumstances

As obvious from this list, frequency is very important – thus the word “occasional” in many of the listed items.

Cash and cash equivalent benefits provided to an employee are never considered de minimis fringe benefits because cash is always accounted for. The exceptions to this rule are transportation fare or meal money that is reasonable in amount and is provided to an employee on an occasional basis because of overtime work.