What Are de Minimis Fringe Benefits?
As a small business owner, you're always on the lookout for creative ways to attract and retain valuable employees. Of course, salary is important, but it's not the only thing employees value. In fact, according to a Glassdoor survey, 60% of employees report that benefits and perks are major factors in considering whether to accept a job offer.
These non-salary benefits or perks are fringe benefits and can determine where an applicant chooses to work.
Employee bonuses, gym memberships, use of a company vehicle for personal reasons, and event tickets are examples of fringe benefits that might entice and motivate employees. In other words, it gives them more reasons to choose your company versus another that might only offer a salary and health insurance benefits.
Here’s the catch: many fringe benefits are taxable, but not all. And if you don’t include the value of taxable benefits in your employee’s income and withhold taxes, you could face IRS penalties. That’s why it’s crucial to understand the difference between taxable fringe benefits, non-taxable fringe benefits, and de minimis fringe benefits.
Taxable vs. Non-Taxable Fringe Benefits
Most fringe benefits are taxable. If you provide taxable fringe benefits, such as bonuses, vacation pay, moving expenses, or a gym membership, you must include the fair market value of the benefit in the employee’s taxable income and withhold appropriate taxes. It’s typically easy to determine the fair market value, as it’s what you paid for the benefit.
IRS Publication 15-B includes a list of non-taxable fringe benefits. When you offer these benefits to employees, you can deduct the cost as a business expense but don’t have to worry about taxes.
Tax-free fringe benefits include:
Paying an employee’s dental, vision or health insurance premiums
Health Savings Accounts/Flexible Spending Accounts
Group term life insurance with $50,000 or less of coverage
Access to on-site gym facilities
Employee discounts
Stock options
Retirement planning
Employee achievement awards (non cash, up to $1,600 in value)
Adoption assistance
Dependent care assistance (up to $5,000 per year)
Education assistance (up to $5,250 annually)
Lodging and meals on the business premises
What Are de Minimis Fringe Benefits?
De minimis fringe benefits are benefits you provide an employee, but they have such a low fair market value that tracking them would be unreasonable or administratively impracticable.
The Internal Revenue Code allows employers to exclude de minimis fringe benefits from an employee’s gross income; however, you may still deduct the cost as a business expense to reduce your tax liabilities.
Examples of de minimis fringe benefits include:
Occasional personal use of the company copy machine
Snacks and sodas in the breakroom
Occasional tickets to sporting or theatrical events
Holiday gifts
Occasional reimbursement for meals or transportation when working overtime
Group term life insurance for the employee’s spouse or dependent (not to exceed $2,000)
Gifts, such as fruit, flowers or books provided on special occasions
Personal use of an employer provided cell phone
Is Cash a de Minimis Fringe Benefit?
The IRS considers cash a fringe benefit but not a de minimis benefit. However, there is one exception. According to the IRS, “An exception is provided for occasional meal or transportation money to enable an employee to work overtime. The benefit must be provided so that employee can work an unusual, extended schedule.”
This exception only applies to the occasional overtime need for meal or transportation expenses. If it becomes a regular occurrence, it becomes a part of the employee’s taxable fringe benefits.
Since tracking the amount of cash you gift an employee is easy, you must include it in their gross income and taxes withheld. In addition, cash equivalent gifts, such as gift cards or gift certificates, must also be included in an employee’s income as a fringe benefit.
Fringe benefits add to your workload because you must track them and withhold appropriate taxes, but they can make a difference in attracting and retaining employees.
Letting employees know they are valued by providing benefits outside the typical salary and health insurance benefits motivates them to work for your company versus another that might offer a higher salary but less extensive benefits.
Not all benefits are taxable, but most are tax deductible, so it’s crucial to track your expenses. If you need help getting your bookkeeping and accounting in line, schedule a call with Slate. We can help you track your employee benefits accurately so you can take the deductions you’re entitled to while holding onto your valued employees.