Question

The Perfection Tax Service gives employees $12.50 as "supper money" when they are required to work overtime, approximately 25 days each year. The supper money received:

a. Must be included in the employee's gross income.
b. Must be included in the employee's gross income if the employee does not spend it for supper.
c. May be excluded from the employee's gross income as a "no-additional cost" fringe benefit.
d. May be excluded from the employee's gross income as a de minimis fringe benefit.
e. None of these.

Answer 1

The $12.50 supper money should be included in the employee's gross income, as it does not meet the criteria for exclusion as a "no-additional cost" or de minimis fringe benefit provided by the employer.

Step-by-step explanation:

The student has asked whether the $12.50 supper money given to employees for working overtime should be included in the employee's gross income for tax purposes. According to the Internal Revenue Service (IRS) regulations, reimbursement for meal expenses under an accountable plan is generally deductible by the employer and not considered taxable income to the employee. However, if the payment is provided in cash without requiring the employee to substantiate actual expenses or return any unspent amount, it is typically considered taxable income.

In this scenario, there is no indication that employees are required to substantiate their supper expenses or return the unspent portion. Therefore, the supper money should be included in the employee's gross income (Option a). It is not a "no-additional cost" fringe benefit, as it incurs an additional cost to the employer. It also doesn't qualify as a de minimis fringe benefit because it is given with regularity. A de minimis benefit is one that, considering its value and the frequency with which it is provided, is so small as to make accounting for it unreasonable or impractical.