What is de minimis?
“De minimis non curat lex” is Latin for “about minimal things.” Anything that is considered “de minimis” can be defined as something of little significance to be of any actual importance. In business and taxes, the IRSsays de minimis has a similar meaning. In business, de minimis refers to benefits that employers provide to their employees that have such little significance, and therefore they don’t need to be taxed or accounted for.
Thede minimis tax ruleis used to determine if discounted securities get taxed at the normal income tax rate or capital gains tax rate after price appreciation. The de minimis tax rule says that if someone’s securities were purchased at a discount under 0.25% of its face value for multiple years from the date purchased to its current maturity, then it’s considered “de minimis” (of too little significance) to be taxed under a market discount. In this situation, individuals need to tax the price appreciation as capital gains tax.
Examples of de minimis benefits
Here are some examples of de minimis within business and taxes, as mentioned by the IRS:
Photocopier use
Employee use of office equipment and machinery to fulfill their day-to-day job duties does not need to be reported and is, therefore, de minimis. Photocopier use exceeds de minimis benefits when an employee begins using it for personal reasons.
Free snacks or meals
If you occasionally buy your company lunch, breakfast or coffee this does not need to be reported and is considered de minimis. However, if you give your employees subscriptions to receive specialty food items each month at set intervals, then it is not de minimis.
Tickets for events
If you have extra tickets to a company event, a sports game or another form of entertainment and give them to your employees, this doesn’t need to be filed for taxation. It is important to note that in this situation, for the tickets to be exempt or de minimis they should be a one-time or occasional circumstance. If you continuously provide free tickets for employees, you may need to file it as part of your taxes.
Holiday gifts
Any type of non-cash gift you provide to your employees during the holiday season is considered de minimis. Here are some examples:
- A mug with the company logo
- A gift basket with holiday-themed food
- A fleece blanket
- Bath and body products
- Specialty coffee or tea
- Desk organization accessories
Certain travel expenses
If you send one or more employees on an occasional work trip to attend a conference or meet with clients out of state, the money you give them for meals, gas or other items may be exempt from taxation. In contrast, if you sent an employee on a business trip every month with one or more expenses covered, you may need to report it.
Employer-provided cell phone
If you provide your employee with a cell phone for business purposes, this doesn’t need to be reported for taxation.
Group-term life insurance
If you offer group-term life insurance for your employees and their spouses or one of their dependents, this typically doesn’t have to be reported, but you should report it if the face value exceeds $2,000.
Non-cash gifts
Any non-cash gifts for birthdays, promotions, professional achievements, weddings, baby showers and other employee life events don’t need to be reported for taxation. This also includes “employee of the month” gifts where you provide employees with special privileges like a parking space for the duration of their term.
Other considerations related to de minimis expenses
Items that do not qualify for de minimis tax exemptions
- Items $100 or more in cash value
- Items disguised as compensation
- Gift cards of any amount
- Achievement awards (in the form of cash, meals, vacation)
How to report taxable expenses
If your benefits fall under the examples of de minimis, then you don’t need to report.If they aren’t exempt,you can report items for taxation by doing the following:
- Download the W-2 form.
- Follow W-2 directions and complete box 14 to record each expense.
