De Minimis

by:

The term de minimis is a Latin expression that translates roughly to “pertaining to minimal things.” In the U.S. legal system, the term is used to refer to certain facts or issues that are so minor as to be undeserving of the court’s attention. In addition, de minimis is relevant to certain bond and securities income, as well as employee wage claims and fringe benefits. To explore this concept, consider the following de minimis definition.

Definition of De Minimis

Pronounced:  dee-minnie-miss

Adjective

  1. Pertaining to trivial things; something minor or insignificant.
  2. A thing of such insignificance as to merit disregard.

Origin

Circa 17th century

What is De Minimis

At some point, the court or other enforcement entity must decide not to entertain every single tiny piece of information brought to bear. Otherwise, every proceeding would be swamped with arguments, reasonings, and excuses that have little to do with the matter at hand. These facts and issues are referred to by the Latin phrase de minimis, which means “pertaining to minimal things.”

This phrase follows the Latin edicts of de minimis non curat praetor (“the praetor does not concern himself with trifles”), and de minimis non curat lex (“the law does not concern itself with trifles”). Early in the 17th century, the queen of Sweden was known to spout the Latin adage aquila non capit muscās (“the eagle does not catch flies”).

In practice, for example, de minimis doctrine seeks to keep trivial matters from clogging up the court system. This may keep a party from bringing up unrelated, insignificant things, or it may result in the dismissal of a lawsuit completely.

De Minimis Tax Rule

Under U.S. tax law, the de minimis tax rule deals with monies received in such small amounts, and in irregular or infrequent circumstances, as to be more trouble than it’s worth to account for. These are monies that an individual may not have to report on his income tax returns, and it occurs in a few different situations.

Taxation on Bonds

Under the de minimis tax rule, an individual must pay capital gains tax on the profit on a bond that was originally purchased at a discount (less than the face value), if the gain is more than a quarter point per year until the date of maturity. The difference between the price the individual paid for the bond, and the amount received when the bond matures, is considered a capital gain. As an example of de minimis profit, if this gain is very small, the individual is not required to report it on his income tax return.

The following method is used to determine whether the gain on a bond is subject to taxation:

  1. Calculate the number of full years between the purchase date of the discounted bond and its maturity date
  2. Multiply that number by 0.25
  3. Subtract that amount from the par value of the bond (the face value written on the bond)
  4. If this amount is greater than the actual purchase price of the bond, the bond is subject to capital gains tax

Taxation on Fringe Benefits

Many people do not realize that the fringe benefits they receive from their employers may be subject to income tax. A de minimis fringe benefit is one that is so low in value as to make it impractical to report on an employee’s income taxes. For example, a de minimis benefit might be the $10 coffee shop gift card given to an employee for handling a difficult client. To determine whether a benefit is de minimis, and therefore can be excluded, include such things as:

  • Occasional personal use of the company photocopier
  • Coffee, doughnuts or pastries, and occasional snacks
  • Occasional tickets for concerts, sports games, or other entertainment events
  • Occasional money for meals or transportation in connection with working overtime
  • Holiday gifts, and gifts for special circumstances, such as flowers, candy, fruit, books, etc.
  • Group term life insurance, for the employee’s spouse and children, which face value of $2,000 or less
  • Cell phone provided by the employer, to be used primarily for business purposes

In determining whether a fringe benefit is de minimis, or if its value can be taxed, the IRS considers, not only the benefit’s value, but the frequency in which it is received. A de minimis benefit is something that is received only occasionally, or which is unusual, rather than expected. To be considered de minimis, a benefit cannot be a type of compensation in disguise as a fringe benefit.

If a benefit that might be considered de minimis because of its infrequent nature is valued too high, it is taxable for its full value, not only the difference between the dollar limit for de minimis benefits and the item’s true value. The specific information on de minimis benefits can be found on the IRS website. The following are some of the types of benefits that may be considered de minimis benefits, depending on the circumstances.

  • Cash Benefits – Although cash almost always counts as a wage, which is not a de minimis benefit, exceptions are made for the occasional meal or transportation expense that is paid to enable an employee to work the occasional overtime. This must be an unusual shift or schedule for the employee, not regular overtime hours.
  • Gift Certificates – Gift certificates are considered “cash equivalent” items, which are generally counted as wages for tax purposes. As with cash benefits, an exception can be made for occasional meal and transportation expenses, paid with a gift certificate, that allow an employee to work occasional, unusual overtime. A gift certificate that can be redeemed for cash or merchandise is not de minimis, and is therefore taxable.
  • Achievement Awards – Some employers reward their employees for a job well done, length of employment with the company, and other special circumstances. Such achievement awards may be considered de minimis if they meet these conditions:
    • The award is given as part of a meaningful presentation
    • The award is not disguised wages
    • The award is not cash, a cash equivalent, a vacation, theater or sports tickets, meals, lodging, or securities.

Specific information on achievement awards can be found in the IRS Fringe Benefit Guide.

Reporting De Minimis Fringe Benefits

If a fringe benefit meets the requirements to be considered de minimis, it does not need to be reported at all. If the benefit is taxable, however, it should be reported in the wages section of the employee’s Form W-2. The value of these benefits is added to the employee’s actual income, and subject to income tax withholding, as well as withholding for social security and Medicare. Some employers report taxable fringe benefits in box 14 of Form W-2.

De Minimis Example in Wage Claim

In August 2016, the California Supreme Court took on the issue of whether employees can make a wage claim for short periods of time, in which they perform minimal tasks, while off the clock. Douglas Troester, a shift supervisor at Starbucks, made a wage claim seeking payment for tasks he performed after clocking out each shift. These activities included such trivial tasks as walking to the front door, setting the alarm, turning the lock on the front door, and walking other employees to their cars.

Starbucks Corporation filed a motion for summary judgment – asking the court to dismiss the case – arguing that these daily tasks took, on average, about four minutes. The company claimed that these tiny slices of time after clocking out were de minimis, and not worth the administrative time and effort to track, nor the court’s time to litigate.

The de minimis doctrine has the court looking at three things to determine whether a work activity is considered de minimis:

  1. Whether the time and tasks can be feasibly captured;
  2. The actual amount of unpaid time is spent performing the tasks; and
  3. Whether the work is irregular or scheduled.

In this case, the court analyzed the amount of time spent doing these small tasks each day. In other cases on this subject, the courts have held that, if the time spent on post-click activities is less than 10 minutes, it is de minimis. The California court granted Starbuck Corporation’s motion for summary judgment. This decision is important, as it created precedent that, even though an employee may perform certain small tasks off the clock daily, it can be de minimis if the amount of time is minute.

Related Legal Terms and Issues

  • Capital Gains – An increase in the value of a capital asset, such as an investment or real estate, that gives it a higher value than the purchase price.
  • Civil Lawsuit – A lawsuit brought about in court when one person claims to have suffered a loss due to the actions of another person.
  • Fringe Benefits – Benefits given by an employer outside the employee’s regular salary, such as use of a company car.
  • Summary Judgment – A final decision on the case, handed down by the judge on the basis of the statements and evidence presented, without a full trial.