Today, we are going to start with a word study. A little etymology always livens up a party. According to West’s Encyclopedia of American Law, “De minimis” is an abbreviated form of the Latin phrase maxim de minimis non curat lex, which means, “the law cares not for small things.” This is a legal doctrine by which a court refuses to consider trivial matters.
While De minimis fringe benefits are excluded from an employee´s income and wages, they are deductible by the employer. But the value of the de minimus benefit is not subject to withholding of income, FICA or FUTA taxes.
As you might expect, the IRS is hesitant to specifically classify an item as a de minimis fringe benefit. In the current economic environment, this classification is becoming increasingly relevant as employers think of new and interesting ways to keep employees happy without incurring the costs of raising salaries.
A de minimis fringe benefit is a benefit, which is so small (considering its value and the frequency with which it is provided) as to make accounting for it unreasonable or impractical. De minimis benefits are excluded under Internal Revenue Code section 132(a)(4) and include items, which are not specifically excluded under other sections of the Code. Some of the items included are:
• Employee use of photocopier
• The good stuff: snacks, coffee, doughnuts, etc.
• Occasional complementary and discounted tickets to athletic and entertainment events (Go Dawgs!)
• Gifts: holiday / birthday gifts (This does not include gifts of cash or gift certificates) but does include turkeys, fruit cake and the like
• Flowers, fruit, books, etc., provided under special circumstances
• Personal use of a cell phone provided by an employer primarily for business purposes
• Achievement awards are broadly defined and usually are less than $400.00
In determining whether a benefit is de minimis, one should always consider its frequency and its value. A critical element of a de minimis benefit is that it is occasional or unusual in frequency. It also must not be a form of disguised compensation.
For those who have attended my classes, “S” continues to stand for sad. Owners / Shareholders owning more than 2 percent of S corporation stock are treated as partners for fringe benefit purposes. Since, partners are considered self-employed persons rather than employees, tax-favored treatment (i.e., corporate deductibility and employee exclusion from income) for employee fringe benefits paid on their behalf is unavailable unless a specific statute treats a partner as an employee.