If you give a small gift or service to your employee that doesn’t cost much and you do it infrequently, you don’t have to include its value in the employee’s wages. The IRS refers to this is as a “de minimis” benefit. It is so small that it would be unreasonable or too difficult to account for it.
However, this doesn’t apply to cash or cash-like gifts (like gift certificates, gift cards, or use of a credit card), no matter how small they are. The IRS never considers these as “de minimis” and you should always include them in the employee’s wages.
If you occasionally provide meal money or local transportation fare to your employees due to overtime work, you may exclude these from their wages.
Examples of “De Minimis” Fringe Benefits
Here are some examples of minimal fringe benefits:
- you give to your employee a cell phone mainly for business purposes, and he or she occasionally uses it for personal reasons,
- when a copying machine that is mostly used for business purposes (at least 85% of the time), is used occasionally by employees for personal reasons,
- you give to your employee non-cash gifts for holidays or birthdays that aren’t worth much,
- you give items like flowers or fruit during special circumstances (like illness, a family crisis, or to recognize outstanding performance),
- you provide your employee with group-term life insurance payable on the death of his or her spouse or dependent, and the payout is not more than $2,000,
- some meals,
- occasionally thrown parties or picnics for your employees and their guests,
- occasional tickets for theater or sporting events,
- certain transportation fare.
Examples of Non-Minimal Fringe Benefits
Here are some examples of benefits that you must include in your employees’ wages:
- season tickets to sporting or theatrical events,
- using an employer-provided car or other vehicle for commuting more than once a month,
- membership in a private country club or athletic facility, no matter how often your employee uses it,
- using employer-owned or leased facilities (like an apartment, hunting lodge, boat, etc.) for a weekend.
If a benefit doesn’t qualify as a small or infrequent benefit (for example, if it’s provided too often), then the entire value of the benefit must be included in the employee’s income.
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This material is for informational purposes only. It does not constitute tax, legal or accounting advice.