We all love to get that year end bonus and enjoy the fruits of our labor. And as employers, we also love to reward our employees. But… is that bonus taxable?
A “de minimis benefit”
De Minimis Benefit – A benefit that is so small that accounting for it is unreasonable or impractical. They include items such as:
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Occasional employee use of photocopier
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Occasional snacks, coffee, etc.
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Occasional tickets for entertainment events
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Small gifts
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Occasional meal money or transportation expenses (for working overtime)
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Group-term life insurance for employee spouse or dependent with face value not more than $2,000
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Flowers, fruit, etc. (provided under unique circumstances)
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Personal use of a cell phone provided by an employer (primarily used for business purposes)
To find out whether a benefit is de minimis, you should always consider its frequency and its value. A critical part of a de minimis benefit is that it is occasional or unusual in frequency. It also cannot be a form of disguised compensation.
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.
What about cash?
Cash cannot be a de minims fringe benefit because it is generally intended as a wage, and usually provides no administrative burden to account for. There are a few exceptions, such as when money is provided for occasional meals or transport ant to work overtime. The employee must actually work the overtime. Meal money found on the basis of the number of hours worked is not de minimis and is considered taxable wages.
The difference of cash and gift certificates
Cash or cash equivalent items provided by the employer are never excludable from income. Gift certificates that are redeemable for general merchandise or have a cash equivalent value are not de minimis benefits and are taxable.
However, a certificate that allows an employee to receive a specific item of personal property that is minimal in value, provided on minimal occasion, and is administratively impractical to account for, may be excludable as a de minimis benefit, depending on the circumstances.
And the award goes to… taxes!
Employees may at times receive achievement awards of tangible personal property given for length of service or safety. Special rules apply to allow exclusion from employee wages from certain awards. These awards
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Cannot be in disguise as wages
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Must be awarded as part of a meaningful presentation
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Cannot be cash, cash equivalent, vacation, meals, lodging, theater or sports tickets, or securities.
How can you report de minimis fringe benefits?
If the benefits qualify for exclusion, no reporting is necessary. If they are taxable, they should be included in wages on Form W-2 and are subject to income tax withholding. If the employees are covered for social security and Medicare, the value of the benefits are also subject to withholding for these taxes.
Now you know some bonus information about your bonus.
