It’s my annual Taxes from A to Z series! If you’re wondering how to figure basis for cryptocurrency or whether you can claim home office expenses during COVID, you won’t want to miss a single letter.

D is for De Minimis Benefits.

The Latin phrase de minimis translates roughly to “of little importance.” When it comes to taxes, a de minimis benefit is one that is so small as to make accounting for it unreasonable or impractical. As a result, de minimis benefits are excluded from income under Internal Revenue Code section 132(a)(4)

In other words, if your employer provides you with a product or service and the cost of that product or service is so small that it would be unreasonable to account for it, the value is not considered income and it’s not taxable. So, a fruit basket or box of chocolates may be considered de minimis (and thus tax-free) but a Rolex watch? Not so de minimis (and thus taxable).

Other examples of de minimis benefits include personal use of an employer-provided cell phone (this one has, of course, attracted a lot of attention over the years); low-value holiday or birthday gifts other than cash; occasional parties or picnics for employees and their guests; and occasional tickets for theater or sporting events.

To determine whether a benefit is considered de minimis, the timing and value of the product or service matter. It needs to be occasional or unusual in frequency, and it must not be a form of disguised compensation (you know the drill: if it looks like a duck and walks like a duck…).

There is no fixed dollar amount that makes something no longer de minimis. But the IRS has ruled previously in a particular case that items with a value exceeding $100 would be too much, even under unusual circumstances. It’s one case – but keep it in mind.

Cash and cash equivalent fringe benefits (for example, gift certificates, gift cards, and the use of a charge card or credit card), no matter how little, are never excludable as a de minimis benefit. An exception applies for occasional meal money or transportation fare to allow an employee to work beyond normal hours.

If the benefits are excluded from income by law, the employer doesn’t need to report them. If the benefits are taxable, the employer should include them on your Form W-2 (they will be subject to income tax). 

Benefits can be tricky, so if you have questions, ask your tax or human relations professional.

You can find the rest of the series here:

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Author

Kelly Erb is a tax attorney and tax writer.

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