De minimis fringes: Is any limit really safe?
August 13, 2008 by Carol KatarskyPosted in: Best practices, Communication, Fringe benefits, Special report, Tax compliance
If a non-cash gift or employee perk has a value of $25 or less, it’s definitely considered a de minimis fringe, right? Wrong.
Many companies have a “threshold value” that they use to decide which fringe benefits get processed through Payroll, and which don’t. For example, the company may treat anything over $50 as no longer de minimis.
But a new letter from IRS indicates that in the Service’s eyes, there is no “safe” limit.
According to the letter from the IRS General Counsel, an employer may use such a threshold as a “rule of convenience,” but it’s not part of the Internal Revenue Code.
That leaves Accounting pros trying to make sure they properly account for fringe benefits navigating quite a gray area: IRS says the a fringe is considered de minimis when the value of the perk is so small that accounting for it would be unreasonable or administratively impracticable.
But bear in mind two key points that can cause sticky situations:
- IRS and your company may have different definitions of “unreasonable and impracticable,” and
- If a fringe has a small value but is given often, you must account for the total value over the course of a year.
Some items that IRS has already said are safely considered de minimis fringes, and have no dollar limit are:
- occasional personal use of employer’s copying machine, as long as at least 85% of the machine’s use is for business purposes
- occasional parties, group meals or picnics for employees and their guests
- birthday or holiday gifts (non-cash) as long as they are of low market value
- occasional tickets to sports or theater events
- coffee, soft drinks, snacks, etc.
- local telephone calls from employer’s phone, and
- flowers, food baskets and similar gifts when sent to employees following a family crisis, illness, or as a reward for special performance.
Has your company had to make any judgment calls about what is or isn’t a de minimis fringe? Share your story in the comments section.
For more details, you can read the entire letter from IRS General Counsel here: INFO 2008-0023.
Tags: A/P, Fringe benefits, Payroll, Tax compliance
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August 14th, 2008 at 12:44 pm
We were at the IPPA conference last week in San Antonio. Is this email the BizActions product? Good material.
Thanks John
August 15th, 2008 at 10:59 am
How about material awards from a safety incentive program? Reportable through payroll as taxable income?
August 15th, 2008 at 11:38 am
We have used gift cards as incentives and rewards for various good deeds at our agency. They typically have been below $25 and are not run through payroll.
August 15th, 2008 at 10:48 pm
Likewise, at our agency we have implemented a program giving away gas cards @ $25 ea to employees who drive to work. It’s a fixed number of employees each month and we should end up with no more than one gas card per employee per year. We don’t run this through payroll either.
August 16th, 2008 at 11:21 am
Folks, keep in mind the de minimis rules don’t apply to cash awards or anything that can be converted to cash, like a gift card or gift certificate. Those items are absolutely taxable income to the employee.
August 16th, 2008 at 11:23 am
John, as long as your awards for the safety program aren’t cash (and aren’t expensive on their own) you should be fine not running them through Payroll.
August 19th, 2008 at 12:10 pm
I agree with the gift cards being taxable. You can account for a gift card, and you know who you gave it to, therefore, it should run through payroll. However, if you’re giving out hats at an employee function, it is not easy to account for who walked in and received a hat and who didn’t, therefore that can be deminimus.
Now if the Managers would just let me know when they’ve gotten gift cards, and who they gave them to, it would help payroll account for them like we should.
August 19th, 2008 at 12:32 pm
Excellent example Betsy. That’s exactly IRS’s reasoning for why gift cards are taxable while some other awards/gifts are not.
August 19th, 2008 at 3:44 pm
Thanks for the clarification, Carol. After reading your article I had suspected that the “accountability factor” would make gift cards taxable income. Your input is appreciated and is all the “ammunition” I need to get this corrected.
August 19th, 2008 at 3:46 pm
Happy to help, Fred. Some of IRS’ rules are so filled with “exceptions” it’s no wonder that companies end up implementing policies that aren’t technically correct — all while they’re trying to do the right thing.
September 11th, 2008 at 2:12 pm
To answer the safety incentive question, unless the rules or limits have changed, you can give up to $1,600 a year for qualified plan awards and $400 a year for nonqualified plan awards per employee. I’m no longer directly involved in payroll but I got it from an old APA Basic Guide to Payroll (2002) that I have. It cites IRC Sec. 74(c), 274(j) and is for Length of service or safety achievement.
December 7th, 2008 at 4:02 pm
How can I find a template of a qualified achievement plan. My company wants to put on in action on 01-01-09 and I am having a hard time locating one. Does anyone have any suggestions.