A gift box wrapped in money
Tess Vigeland: OK, let's take another call. Enrolled agent Frank Degen is with us taking your tax questions. Ted is up next on the line and has a question about some unusual company bennies. Where do you work?
Ted: So I work at a video game company.
Vigeland: So do you get, like, free video games?
Ted: Uh, yeah. That's one of the benefits, definitely.
Ted: But this year they told us that we had to file claims for all the free games and things like sports tickets and gifts. And it's showing up this year as a line on my W-2 as gifts and rewards. And there's a deduction to it. So the company's paying all the taxes for it. But I was just thinking in the future if I'm not working at the company any more, how do I keep track of all of that? And a lot of these things are employee-only gifts like statues and swords. So how do I figure out what the value of these things are?
Vigeland: Wait. Your company gives you swords?
Frank Degen: Do you work the "Dungeons & Dragons" or...
Ted: Something like that, yeah.
Vigeland: All right. So Frank, I've actually never heard of this, that you have to claim gifts that your employee has given you. There must at least be a $20 tschotske exemption?
Degen: Yeah. There's really no such thing as gifts from employers to employees as a general rule because otherwise some employers would try to disguise compensation as a gift.
Vigeland: But here we're talking about t-shirts and stuff.
Degen: No, no. I understand. I'm just going to get that out of the way. But in Ted's situation what he has is basically a fringe benefit -- a perk of working for the company. And generally fringe benefits are taxable income. There are some exceptions, like say for example, an airline worker gets free air transport or very reduced air transport -- that's in the Internal Revenue code. All right, that's called a "no-cost fringe benefit" because that doesn't cost an airline any more to let that person go on air. In Ted's case, there is a provision in the Internal Revenue Code that the minimis fringe benefits are not taxable. The minimis. The key is gifts that are occasionally given -- there's not definition of that -- just a commonsense facts and circumstances approach, all right?
Vigeland: All right, Ted, so how often does this happen?
Ted: Well the sword was for working five years, so I don't see that happening again. But maybe once or twice a year? And sometimes I just randomly win sporting tickets in a raffle.
Degen: How much money was involved in terms of the benefits that you got?
Ted: Well without getting into too many specifics, I'll say it's a couple thousand.
Degen: All right. So that indicates to me that these are fringe benefits, but they are taxable. They're more than the minimis. You know, a couple bucks here, a couple bucks there. But thousands of dollars is, in my mind, I think the company's doing it correctly from what I'm hearing and that is additional compensation. The coffee and donuts in the morning they probably can get away with, but the sword and those other things they're going to have to pay taxes on.
Vigeland: Yeah. Ted, when are you actually going to take that off the wall and engage someone in a duel?
Ted: Well my roommate has the same sword too from the same company, so uh-oh.
Vigeland: Uh-oh. All right, well have we helped you out? Does that answer your question?
Ted: Yeah. That makes a lot of sense now, so the minimis term, that's interesting. Yeah.
Vigeland: All right. Thanks for the call, Ted.
Ted: Thanks a lot.