De Minimis Fringe Benefits

A de minimis fringe is any property or service provided to the employee that has such a minimal value that accounting for the receipt of such benefit would be administratively impractical or unreasonable. In determining whether a benefit is de minimis, the IRS looks to the frequency at which the benefit is provided to an individual employee unless this is administratively difficult and then the IRS looks to all employees as a whole. Such benefits include an occasional meal, meal money or local transportation fare, especially for overtime work, occasional personal use of the university's copy machine, traditional birthday or holiday gifts of property with a low fair market value, occasional theater or sporting event tickets, drinks and snacks, local telephone calls, and flowers, fruit, books or similar property provided to employees under special circumstances. Benefits that are not de minimis benefits are season tickets to sporting or theatrical events, private country club or athletic memberships, use of university owned or leased facilities for a weekend, and the commuting use of a university-provided vehicle more than one day per month. In addition, a cash equivalent fringe benefit is not excludable; for example, if cash were given to an employee for a theater ticket, this is not excludable as a de minimis fringe.

If a benefit provided is not de minimis because its value or frequency exceeds a set limit, the entire amount of the benefit is included in the employee's gross income, not just the excess over the amount.

Complementary and Discounted Tickets to Athletic and Entertainment Events

Such tickets may be considered an excludable fringe benefit under one of four methods, depending on the facts and circumstances involved. Under the first method, such tickets may be a de minimis fringe benefit if provided occasionally. This exclusion does not include season tickets. The other methods are as a no-additional cost service, or as a working condition fringe, or as a qualified employee discount.


Traditional holiday gifts or birthday gifts of property with a low fair market value are considered to be de minimis fringe benefits if given on an infrequent basis to the individual employee. This does not include gifts of cash or gift certificates, but does include flowers, fruit, books, or similar property given to employees under special circumstances, such as illness of the employee or family, family crisis, or outstanding performance on behalf of the employee.

Awards and Other Presentations

Any prizes or awards from the university to an employee in recognition of some achievement in connection with employment must be included in the employee's wages/salary. Awards that are “in connection with employment” include those given for good or outstanding work or for suggestions made to the university, generally encompassing all awards connected with services performed for the university. However, there are two exceptions to this general rule of inclusion: employee achievement awards and de minimis fringe benefit awards.

There is a de minimis fringe benefit exclusion from an employee's gross income for awards given by the university that are of nominal value and for traditional retirement awards that are more expensive. Awards of nominal value are defined for Baylor University purposes as falling under the $50 de minimis level. Traditional retirement awards do not have to meet this de minimis level. For example, if the university provides a gold watch to each employee that completes 25 years of service, this is excluded as a de minimis fringe benefit, (regardless of the length of service award qualifications). However, this watch would not be excludable if given for another purpose other than the completion of lengthy service to the university.

Cafeterias and Dining Rooms

IRC 132 states the employer operation of any eating facility for employees shall be treated as a de minimis fringe benefit and so excludable from the employee's gross income if the following two factors are met: (1) such facility is located on/near the employer's business premises and (2) revenue derived from such normally equals/exceeds direct operating costs on an annual basis. The meals furnished must be provided during, or immediately before or after, the employee's workday. Meals include food, beverages, and related services.

The direct operating cost is equal to the cost of food (including spoilage), beverages, and cost of labor for personnel whose facility related services are performed primarily on the facility premises. For example, the cost of cooks, waiters, and waitresses are included, but only to the extent performed on the premises. In addition, if the employer contracts with another party to operate the facility, the direct operating costs include any such cost incurred by the employer and the amount paid to the operator to the extent it is attributable to what would be direct operating costs to the employer if he operated the facility. The employer is given a choice with respect to the application of direct operating costs each eating facility may be applied separately, or they may be applied in total for all eating facilities.

If the revenue from the facility does not equal or exceed the direct operating cost, the employee must include in income the difference between the fair market value of the meals minus the amount paid, if any, for the meals. FMV is determined by the amount an employee would have to pay in an arm's length transaction.

The above rule only applies to a highly compensated employee if access to the facility is available on substantially the same terms to each member of a group of employees which is defined under a reasonable classification set up by the employer which does not discriminate in favor of highly compensated employees. Meals at different employer-operated eating facilities are not related fringe benefits, so a highly compensated employee may exclude from gross income the value of a meal at a nondiscriminatory facility even though meals at a discriminatory facility cannot be excluded. All employees who regularly work at or near the premises on which the eating facility is located are to be aggregated for these discrimination rules, except those employees in different lines of businesses. The discrimination rules are applied separately to each eating facility.