What is a de minimis fringe benefit and how is it treated for tax purposes?

• A. A very small-value fringe benefit that may be excluded from wages if it meets IRS thresholds; otherwise taxable
• B. A fringe benefit that is always taxable
• C. A fringe benefit that is never taxable
• D. A fringe benefit that must be reported on Form 1099

Answer: (A)

De minimis fringe benefits are items of very small value that the IRS allows to be excluded from an employee’s wages because tracking them would be impractical. When a fringe benefit meets this small-value standard, its value can be left out of taxable wages for federal income tax and payroll taxes. If the benefit isn’t de minimis—either because it’s not small enough or easy to administer—its value must be treated as taxable compensation and included in wages. This is why the correct description emphasizes a very small-value fringe benefit that may be excluded if it meets the threshold, with taxation otherwise. Examples include occasional coffee, donuts, or small, infrequent gifts. They aren’t always taxable, and they aren’t reported on Form 1099; wages are reported on Form W-2.