This Tax Tip Spotify Podcast and/or WordPress Blog Post is in response to inquiries regarding the tax treatment of meals provided to employees free of charge.
In general, the value of meals employers provide to an employee are free of charge is excluded from the employee’s gross income and from wages for employment tax purposes if the meals are provided (1) for the “convenience of the employer,” and (2) on your business premises. Your “business premises” generally means the place of employment of the employee.
Meals you provide to an employee free of charge are considered to be furnished for the convenience of the employer so long as you provide the meals for a substantial noncompensatory business reason. Examples of substantial noncompensatory business reasons may include:
(1) You need the employee to be available for Emergency Calls during the Meal Period,
(2) Your business requires that the employee be restricted to a Meal Period of Less than One Hour and the employee cannot be expected to eat elsewhere in such a short period; and
(3) The employee cannot otherwise secure proper meals within a reasonable meal period because there are Insufficient Alternative Eating Facilities within the vicinity of the employer’s premises.
Meals furnished to a restaurant or food service employee for each meal period in which the employee works are regarded as furnished for a substantial noncompensatory business reason of the employer, regardless of whether the meal is furnished during, immediately before, or immediately after the employee’s working hours. If an employee is required to occupy business premises living quarters as a condition of employment, then the exclusion will apply to the value of any meal you provide without charge to the employee living on such premises.
Generally, all meals you provide to employees on your business premises are treated as provided for the convenience of the employer if more than half of the employees to whom these meals are furnished receive such meals for the convenience of the employer.
If you provide no-cost meals as a means of providing additional compensation and not for a substantial noncompensatory business reason, then the meals are not excludable from the employee’s gross income under this rule. However, if you provide the meals for a substantial noncompensatory business reason, they are excludable from the employee’s gross income even if there is also a compensatory reason. Any meals you provide to employees on nonwork days do not qualify for exclusion under this rule.
Under a separate rule, the value of occasional meals (or meal money) you provide free of charge to enable an employee to work overtime, as well as free meals provided at occasional parties and picnics for employees and their guests, can be excluded from the employees’ income as de Minimis Fringe Benefits.
However, employers are limited to a 50 percent deduction for amounts incurred and paid after December 31, 2017, and until December 31, 2025, relating to expenses associated with providing food and beverages to employees through an eating facility that meets the applicable requirements and for the convenience of the employer. For amounts incurred and paid after December 31, 2025, no deduction is available.
Please call me at your convenience so that we can discuss the tax treatment of employer-provided meals in the context of your particular situation.
Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.
DON FITCH, CPA
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Palm Desert, CA 92260
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Email: DonFitchCPA@paylesstax.com
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(Updated 05222021-1 320-375)