User:LawResearch00/De minimis fringe benefit

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Below is the published page on Wikipedia as of February 2024. Anything in bold is added by me.


De minimis fringe benefits are low-value perks provided by an employer; de minimis is legal Latin for "minimal".

Perks that are determined to be de minimis fringe benefits may not be accounted or taxed in some jurisdictions as having too small value and too complicated accounting.

United States

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Definition

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Under US Internal Revenue Service Code § 132(a)(4), “de minimis fringe” benefits provided by the employer can be excluded from the employee’s gross income.[1] “De minimis fringe” means any property or service whose value (after taking account of the frequency with which the employer provides smaller fringes to his employees as well as the employees' spouse and dependent children) is so small as to make accounting for it unreasonable or administratively impracticable.[2][3][4] As a practical matter, 132(a)(4) is a narrowly defined rule of administrative convenience.

Qualification as a de minimis fringe benefit

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For any property or service to qualify as a "de minimis fringe", it must be unusual or occasional in frequency, and its value cannot be a disguised form of compensation.[5]

Generally, the Internal Revenue Service considers the following three factors:

  1. the frequency of the benefit
  2. the value of the benefit
  3. the administrative impracticality.[6]

De minimis fringe is defined in Internal Revenue Code section 132(e)(1) as any property or service given to an employee by the employer whose value, after taking account of the frequency provided, is so small as to make accounting for it unreasonable or administratively impracticable. Examples of de minimus fringe include personal use of a cell phone provided by the employer primarily for business purposes; occasional personal use of the employer's copier; holiday gifts, other than cash or gift cards, with a low fair-market value; occasional parties or picnics for employees and their guests; occasional tickets for theater or sporting events.[7]

Under Section 1.132-6(b)(1) of the Treasury Regulations, all similar fringes must be considered together to determine whether they are de minimis.[8] One free meal given to all employees once a year would qualify because the meals are infrequently provided.[8] One free meal provided to a different employee each week throughout the year would not qualify.[8]

Under Section 1.132-6(c) of the Treasury Regulations, cash never qualifies as a de minimis fringe.[8] Cash or gift certificates provided to an employee so the employee may buy a theater ticket does not qualify.[8][9] It would qualify, however, if the employer purchases the theater ticket, provides the actual theater ticket to the employee, and the employer infrequently gives out tickets to employees.[8]

Gift cards never qualify if they are redeemable for general merchandise or have a cash-equivalent value.[10] Gift cards do not qualify if they have a specific face value and are redeemable for merchandise at a store.[11] If a gift certificate allows an employee to receive a specific item of low-value personal property, it is administratively impractical for the employer to account for the gift certificate, and the employer infrequently provides gift certificates to employees, then the gift certificate qualifies.[10]

The Internal Revenue Service does not define low value, but in Chief Counsel Advice Memorandum 200108042 it states that an item worth $100 is not a low-value item.[12]

While the Internal Revenue Service does not define infrequently, gifts to employees on a quarterly basis would not qualify as a de minimis fringe benefit.[13]

Employer-provided eating services

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Six factors must be met for employer-provided eating services to qualify as de minimis fringe:

  1. the facility must be owned or leased by the employer
  2. the facility must be operated by the employer
  3. the facility must be on or near a business premises
  4. the revenue earned from this facility normally does not operate at a monetary net loss
  5. meals must be given during, or immediately before or after the employee's shift;
  6. eating facilities must also be available to employees indiscriminately.[14][15][16]

Owned or leased by employer requirement

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It is required that the eating facility be "owned or leased by the employer."[17][15] Although the word "lease" is not defined, it must be interpreted as within its "ordinary, contemporary, common meaning."[18][19] It is not required for an employer and lessor to refer to the occupancy of an eating facility as a "lease," but that the employer be given "the right to use and occupy" the facility. [16]

Premises operated by employer requirement

When an employer contracts with a third party to operate the eating facility, the facility is operated by the employer.[20] One eating facility may be operated by multiple employers.[20]

Qualification as a business premises

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A business premises is an area in which employees perform a significant amount of their work or where the employer handles a significant amount of business, and is not required to be employer's principal structure.[21] The nature of the business and employee's duties are relevant when determining whether a premises is, or is near to, a business premises.[22] This is determined by evaluating the functional link between the business and premises in question, rather than geographic distance.[23]

Minimum revenue requirement

Generally, it is required that the employer-provided eating facility normally does not operate at a loss, determined by revenue on an annual basis.[24][14] This requirement may be waived if both, the employer gives the meals for their own convenience and that the meals are given on the employer's premises.[16] Even meals that are given to employees at no cost may be de minimis fringe if they are given for "a substantial noncompensatory business reason of the employer."[25] Examples of substantial noncompensatory business reasons are (1) if the employee must respond to necessary calls during his break, (2) that the employee's break periods are below 45 minutes, and (3) if the employee has no other way to consume a meal within his break.[26]

Timing of meals requirement

The employer must provide the meals for employees either "immediately" before or after the workday, or during the workday.[27] The word "immediately" must be interpreted within its "ordinary, contemporary, common meaning."[18]

Indiscriminate availability to employees requirement

De minimis fringe employee-provided eating facilities may not be available only to highly compensated employees.[15] Access to employee-provided eating facilities must be available on the same terms to all employees within a group, determined by reasonable classification.[15] A "highly compensated employee" is defined as an employee who owns (or owned, during the last calendar year) five percent or more of the corporation, or was compensated over $155,000 in the last calendar year, and that this compensation puts the employee at the top twenty percent of earners within the corporation.[28][29]

Examples of de minimis fringe benefits

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  1. occasional employee use of photocopier if the employer sufficiently controls its use and 85% of its use is for business purposes;
  2. occasional typing of personal letters by a company secretary;
  3. occasional snacks (e.g., coffee, donuts, candy, etc.);
  4. occasional tickets for entertainment or sporting events;
  5. holiday and birthday gifts (not cash) with a low fair-market value;
  6. occasional meal and transportation money when an employee must work overtime;
  7. occasional usage of office stationery (pen, envelope, paper, staple, postage stamp etc) for individual personal tasks — i.e. mailing a letter to a friend, paying a traffic ticket, writing, writing a sticky note about an errand to do on the way home after work
  8. group-term life insurance payable on death of an employee’s spouse or dependent if the face value is no greater than $2000;
  9. flowers, fruits, books, etc. provided under special circumstances (e.g. illness or family crisis)
  10. occasional parties or picnics for employees and their guests; and
  11. a gold watch upon the employee's retirement.[30][31][32][33]

Examples of property or services not de minimis fringe benefits

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  1. cash;
  2. gift certificates or cash-equivalent vouchers;
  3. employee discounts;
  4. employee achievement awards;
  5. season tickets to sporting or theatrical events;
  6. membership to a private country club or athletic facility; and
  7. certain transportation costs.[31][32][34]

Tax consequences for the employee

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If the property or services provided to the employee qualify as a “de minimis fringe” benefit, then the employee is allowed not to report the amount.[35]

References

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  1. ^ IRC § 132(a)(4)(2007).
  2. ^ IRC § 132(e)(1); Tres. Reg. § 1.132-6(a).
  3. ^ IRC § 132(h)(2).
  4. ^ Mihalik v. Comm'r Casetext.com. Retrieved March 31 2024.
  5. ^ "FAQs for Government Entities Regarding De Minimis Fringe Benefits". Internal Revenue Service. Archived from the original on August 17, 2007.
  6. ^ INTERNAL REVENUE SERVICE, EMPLOYER’S TAX GUIDE TO FRINGE BENEFITS 8, [1].
  7. ^ "Publication 15-B: Employer's Tax Guide to Fringe Benefits". Internal Revenue Service. 2016.
  8. ^ a b c d e f "Private Letter Ruling 201005014". Internal Revenue Service. February 5, 2010.
  9. ^ "26 CFR 1.132-6 - De minimis fringes". Internal Revenue Service. Legal Information Institute, Cornell University Law School.
  10. ^ a b "De Minimis Fringe Benefits". Internal Revenue Service. January 19, 2016.
  11. ^ "De Minimis Fringe Benefits". Vice President for Finance Division. University of Louisville.
  12. ^ "IRS Begins to Define De Minimis Fringes[permanent dead link]". HR.com. June 14, 2001.
  13. ^ "Gift Certificates as de Minimis Fringe Benefits Archived 2016-06-03 at the Wayback Machine". American Payroll Association, Orange County Chapter. September 2, 2014.
  14. ^ a b 26 CFR § 1.132-7.
  15. ^ a b c d IRC § 132(e)(2).
  16. ^ a b c Jacobs v. Comm'r Casetext.com. Retrieved February 29 2024.
  17. ^ 26 CFR § 1.132-7(a)(2)(i).
  18. ^ a b Perrin v. United States Casetext.com. Retrieved March 29 2024.
  19. ^ Sandifer v. U.S. Steel Corp. Casetext.com. Retrieved March 29 2024.
  20. ^ a b 26 CFR § 1.132-7(a)(3).
  21. ^ Benninghoff v. Comm'r of Internal Revenue Casetext.com. Retrieved February 29 2024.
  22. ^ Lindeman v. Comm'r of Internal Revenue Casetext.com. Retrieved February 29, 2024.
  23. ^ Adams v. United States Casetext.com. Retrieved February 29, 2024.
  24. ^ IRC § 132(e)(2)(B).
  25. ^ 26 CFR § 1.119-1(a)(2).
  26. ^ 26 CFR § 1.119-1(a)(2)(ii).
  27. ^ 26 CFR § 1.132-7(a)(2)(iv).
  28. ^ 26 USCS § 414(q).
  29. ^ IRS Notice 2023-75.
  30. ^ IRS Fringe Benefit Guide.
  31. ^ a b Internal Revenue Service, Facts and Questions for Government Entities Regarding De Minimis Fringe Benefits, [2]
  32. ^ a b INTERNAL REVENUE SERVICE, EMPLOYER’S TAX GUIDE TO FRINGE BENEFITS 8 [3].
  33. ^ Sen.Rep. No. 99-313, 99th Cong., 2d Sess. 53-54 (1986).
  34. ^ Treas. Reg. § 1.132-6(e)(2)
  35. ^ IRC § 132(a)(4).
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