Employee Gifts

From Bob Jennings at TaxSpeaker. Check out more at taxspeaker.com

Employers may provide, tax-free, de minimis fringe benefits to employees under Internal Revenue Code Section 132(e).

A de minimis benefit is any property or service provided to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable. 

1.  In Chief Counsel Advice (CCA) Memorandum 200108042, which the IRS issued on December 20, 2000, the IRS said that non-monetary recognition awards having a fair market value of $100 do not qualify as de minimis fringes.

Cash, no matter how little, is never excludable as a de minimis benefit, except for occasional meal money or transportation fare. Reg. 1.132-6(c).

Unfortunately, there is no bright-line dollar amount as to what qualifies as de minimis. The tax code, Treasury regulations, and other IRS guidance do not provide a specific dollar limit for de minimis gifts.

A.    Examples of non-taxable de minimis gifts include (as long as not routine):

1. Holiday and birthday gifts, other than cash, with a low FMV. IRC Section 102(c), however, provides that the gift exclusion does not apply to “any amount transferred by or for an employer to, or for the benefit of, an employee.”

2. Occasional personal use of a company copying machine and local phone calls,

3. Occasional parties, group meals or picnics for employees and their guests-still 100% deductible under TCJA (IRC Sec. 274(e)(4))

4. Employee, stockholder and director business meetings, also under IRC Sec 274(e)(5)

5. Occasional tickets for entertainment or sporting events, no longer deductible under TCJA

6.  Flowers or fruit for special circumstances,

7. Meals, coffee, etc. provided to an employee in order to work overtime are no longer deductible as a result of 2025’s OBBBA.

8. Personal use of a cell phone provided by the employer primarily for business purposes,

9. Employer provided local transportation,

10. Commuting use of employer vehicle no more than once per month,

11. Meals provided to employees at an employer-operated eating facility under certain rules

12. Local transportation fare provided to any employee is a nontaxable de minimis fringe benefit if it is reasonable, occasional and is provided to permit the employee to work overtime. Reg.1.132-6(d)(2)

In Technical Advice Memorandum (TAM) 200437030 (April 30, 2004), the Internal Revenue Service considered an employer’s gift of a $35 gift certificate, redeemable for groceries at specified local grocery stores, which was given in lieu of the ham, turkey, or gift basket that the employer had traditionally bestowed as holiday gifts in prior years. The IRS held that the gift certificate was not de minimis because it is not administratively impracticable to account for gift certificates.

Example 1 A commuter ferry breaks down and engineers are required to work overtime to make repairs. After working 8 hours, the engineers break for dinner because they will be working for an additional 3 hours. The supervisor gives each employee $10.00 for a meal. The meal is not taxable to the engineers because it was provided to permit them to work overtime in a situation that is not routine.

Example 2 An employer has a policy of reimbursing employees for breakfast or dinner when they are required to work an extra hour before or after their normal work schedule. The reimbursements are taxable because the employer has a policy which indicates the benefit is routinely provided. In addition, the meal reimbursement does not enable the employee to work overtime, but is an incentive to do so.

B.    All de minimis fringe befits provided to all employees, partners, members, shareholders, S corporation shareholders and independent contractors are potentially deductible by the employer and tax-free to the employee.

1. In PLR 201005014 the IRS held that the value of work-related clothing provided to employees was non-taxable as de minimis fringe benefits. These meals are usually free for the recipient even if a business owner.