Before January 1, 2018. Certain employer-provided fringe benefits were allowed to be excluded from an employee’s gross income and wages for purposes of employment taxes. Fringe benefits include:
De minimis fringes*
Qualified transportation fringes
On-premises athletic facilities
Meals for the convenience of the employer
The TCJA eliminates the deduction allowed for the amount paid or incurred by the employer after December 31, 2017. Items included in the TCJA exclusion are:
Activities considered to be entertainment, amusement or recreation
Membership dues to clubs for business, pleasure, recreation or social purposes
Transportation fringe benefits for 2018 and 2019 that can be excluded from employee income are listed in the table below:
In 2018 through 2025, employers can no longer deduct the fringe benefits paid to employees for qualified parking and transit passes/commuter highway vehicles. The employee does not need to include these benefits in income if they are received.
In 2018 through 2025 employers can deduct qualified bicycle commuting reimbursements of up to $20/month as a business expense. The employee must include these benefits in income if they are received.
*In general, a de minimis benefit is one for which, considering its value and the frequency with which it is provided, is so small as to make accounting for it unreasonable or impractical. De minimis benefits are excluded under Internal Revenue Code section 132(a)(4) and include items that are not specifically excluded under other sections of the Code. These include such items as:
Controlled, occasional employee use of photocopier
Occasional snacks, coffee, doughnuts, etc.
Occasional tickets for entertainment events
Occasional meal money or transportation expense for working overtime
Group-term life insurance for employee spouse or dependent with face value not more than $2,000
Flowers, fruit, books, etc., provided under special circumstances
Personal use of a cell phone provided by an employer primarily for business purposes
In determining whether a benefit is de minimis, you should always consider its frequency and its value. An essential element of a de minimis benefit is that it is occasional or unusual in frequency. It also must not be a form of disguised compensation.
Whether an item or service is de minimis depends on all the facts and circumstances. In addition, if a benefit is too large to be considered de minimis, the entire value of the benefit is taxable to the employee, not just the excess over a designated de minimis amount. The IRS has ruled previously in a particular case that items with a value exceeding $100 could not be considered de minimis, even under unusual circumstances.