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What is De Minimis?
De Minimis is a legal term that has been applied in many ways, including to copyright law, business law, and income tax law. “De Minimis” comes from the Latin phrase “de minimis non curat lex” which translates to “The law does not concern itself with trifles.” Today, the term is used across a variety of contexts to describe matters that are too small or trivial to be deemed worthy of consideration by a regulating authority.
From a compliance perspective, corporations are required to comply with the De Minimis Rule created in the United States tax code when reporting the gross income of an employee.
What is the De Minimis Rule?
The De Minimis Rule is established in the United States Internal Revenue Code under Section 132(e)(1). This section of the tax code deals with the computation of taxable income, and in particular with items that may be specifically excluded from gross income.
Under this section, a corporation is permitted to exclude from its reporting of an employee’s gross income any conferred benefits that meet the definition of “De Minimis Fringe”. This term refers to any property or service provided to the individual by an employer which is “so small as to make accounting for it unreasonable or administratively impracticable.”
What is a De Minimis Benefits Example?
De Minimis benefits include a variety of products or services that employers may provide to employees, and which employees are not required to claim as part of their gross income.
Examples of De Minimis benefits that may be excluded from the employee’s gross income include occasional benefits from the following areas:
- Meals, meal vouchers, or meal money provided to employees working overtime
- Refreshments purchased for staff meetings or to boost team spirit in the office
- Award luncheons or dinners for employees
- Personal use of company-owned resources, such as printers and copiers
- Use of a company vehicle for commuting to/from work
- Sporting event tickets or theater tickets provided by the employer
- Gifts for an employee’s birthday or during the holiday season
- Group term life insurance with annual employer-paid premiums that amount to less than $2,000 per employee.
As you may notice, many of these benefits qualify as De Minimis fringe because they are administered by the employer only occasionally—not on a regular basis or as part of the employee’s agreed compensation package.
Which Benefits are Not Considered De Minimis Benefits?
The Internal Revenue Service has indicated specific types of benefits that should never be considered De Minimis fringe benefits. These include:
- Cash benefits, including the employee’s salary and any cash equivalents such as gift cards or vouchers. An exception exists here for employers who occasionally provide a meal allowance for employees working overtime.
- Season tickets to sporting events or theatres.
- Personal use of properties (apartments, vacation homes), boats, or airplanes owned by the employer.
- Personal use of an employer’s vehicle to commute to/from work more than once per month.
- Any gym, gold club, or country club memberships
Unlike the De Minimis benefits identified in the previous section, benefits listed here are either substantial in value or conferred by the employer over a period of time—not just occasionally. As a result, they must be reported as part of the employee’s gross annual income.