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Global mobility: key payroll issues
Recognising the beauty of ambiguity behind de minimis fringe benefits
Kevin A Valuet CPP, director of payroll training, PayrollOrg discusses the topic of de minimis fringe benefits *
This course is ideal for individuals managing a global payroll office or those about to move into this area.
P ayroll professionals appreciate it trouble wrapping our head around topics that can be ambiguous. De minimis fringe benefits is a topic that lives in ambiguity. The Internal Revenue Code (IRC) generally defines a de minimis benefit as one which is so small that accounting for it is unreasonable or impractical, considering its value and the frequency it’s provided. If the benefit fits within these guidelines, when rules, guidelines and amounts are clearly defined. We often have the fair market value of the benefit may be excluded from income. Both value and frequency play important roles in determining if the benefit being provided to employees should be considered de minimis. The terms value and frequency aren’t clearly defined within the guidelines and definitions of unreasonable and impractical are up for interpretation. However, combining the understanding of value and frequency along with what’s considered unreasonable and impractical can lead to a greater understanding of how de minimis fringe benefits are defined. The frequency of applying a benefit looks at the regularity of the benefit being provided to employees. Is a benefit being provided on a regular basis – daily, monthly, quarterly, annually, etc.? Keep in mind that the specific benefit may differ, but it could still be considered frequent enough to not be considered de minimis. For example, an employer who provides lunch every Friday would still be providing this benefit on a frequent basis, even if the meal is from a different restaurant each week. Value could be the most confusing topic related to de minimis. This is, in
part, due to information provided by the Internal Revenue Service (IRS) directly. On the de minimis fringe benefits IRS webpage, it states: “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.” Many employers interpret this as meaning that anything under $100 is considered de minimis. However, that doesn’t apply the guideline correctly. Stating items over $100 cannot be de minimis doesn’t mean that items under $100 are automatically de minimis. In fact, the defining of specific amounts generally means that the amount can be accounted for. For example, an employer purchases and provides each employee with a sweatshirt valued at $30. The value can be clearly defined and is under $100. This benefit doesn’t meet the de minimis requirements as accounting for the value of the item is reasonable in nature. The website can be found here: https://ow.ly/ EYfk50PNPhi. The secret to de minimis fringe benefits lives in its ambiguity. Exclusions as a de minimis fringe benefit are based upon the concept that the value and frequency cannot clearly be defined. The more details about a benefit that can be clearly defined, such as value and frequency, the less likely that the benefit can be claimed as a de minimis fringe and excludable from income. The beauty of ambiguity is that each employer may interpret the guidelines based on its own circumstances. However, in defining specific parameters around fringe benefits, employers must make sure the benefits are de minimis in nature. n
Visit cipp.org.uk/training to book your place
Non-member price: £449 + VAT Member price: £349 + VAT
PayrollOrg (PAYO), https://ow.ly/wLps50PNR1g, is the leader in global payroll education, publication and training. This nonprofit association conducts more than 300 payroll training conferences and seminars across the globe each year and publishes a complete library of resource texts and newsletters. Representing more than 19,000 members, PayrollOrg is the industry’s highly respected and collective voice in Washington, D.C. Get more information at https://ow.ly/aEcc50PNR4E and https:// ow.ly/16WJ50PNR73.
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*This article relates to US payroll practices.
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| Professional in Payroll, Pensions and Reward |
Issue 94 | October 2023
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