Business or work-related expenses can take up a big part of the budget for both employers and employees. Fortunately, the federal tax code gives some tax benefits for various business expenses. The tax deduction for employee meals is one of the most important and frequently used tax benefits.
Both employees and employers can see significant tax savings from employer-provided meals. Generally, as an employer, you get a tax deduction and your employees get tax-free meals. Not all meals get the tax benefit, though. There are detailed rules about what expenses qualify for this favored tax treatment.
Generally, just about anything you give your employees as "compensation" for their work is income under the tax code. Wages or salary, of course, are included as income, but so are things like fringe benefits and commissions. Likewise, the value of meals you provide for your employees normally would be treated as gross income to them.
However, there's an exception for certain meals. If they qualify:
- You can take a tax deduction for the full value of meals you provide to your workers, and
- The value of the meals aren't included in your employees' gross income
To qualify for the tax deduction, meals have to be:
- Provided on the business premises, and
- For convenience of the employer
On the business premises generally means the location where your employees work. It can also mean an eating facility that you run, like a cafeteria or lunch hall. An "employer-operated eating facility" must:
- Be owned or leased by your business
- Be operated by you directly, such as by your own workers, or by a third party under a contract, such as a caterer
- Be on or near your business premises
- Provide food and drinks during, or immediately before or after, the workday
For the convenience of the employer generally means that you have a reason for providing free meals, and the reason isn't related to the worker's pay or salary. For instance:
- Making sure workers are available for emergency calls during a meal break
- The nature of your business makes it necessary to limit meal periods to a short period of time, like 30-45 minutes, and workers can't eat somewhere else in such a short time
- When employees can't otherwise eat proper meals within a reasonable period of time, such as when there aren't many restaurants near the business
If these requirements are met, you can take a deduction for the value of all meals provided to your workers, and the value of the meals isn't included in your employees' gross income.
- Hospital employees are on call 24 hours a day to provide medical treatment. The hospital requires them to take meals at the hospital free of charge. The meals are provided by the employer for the employer's convenience because it's necessary for the employees to present for emergencies and ongoing treatment of patients. So, the hospital can deduct the value of the meals and the value isn't included in the employees' gross incomes
- A bank teller who works from 9 a.m. to 5 p.m. is given a free lunch in a cafeteria that's run by the bank on its premises. The bank provides meals in order to limit the teller's lunch period to 30 minutes, since the bank is busiest during the normal lunch period. If the teller had to get lunch elsewhere, it would take much longer than 30 minutes, and the bank strictly enforces the 30 minute limit. The meals qualify because the bank's business makes it necessary to restrict the teller's lunch to a shorter period, and the teller can't eat elsewhere in the allotted time
De Minimis Meals
You can take a deduction for any meal you provide to an employee if it has so little value that accounting for it would be unreasonable or impracticable. Examples of de minimis meals include:
- Coffee, doughnuts, or soft drinks
- Occasional meals or meal money that enable an employee to work overtime
- Occasional parties or picnics for employees and their family and guests
Some Special Cases
There are a number of instances where the deduction does and doesn't apply. For example, if you provide meals to an employee on her days off work, you can't deduct the value of the meals and the value must be included her gross income. This rule doesn't apply, though, if the meals are furnished with lodging that qualifies for the same tax treatment as qualified employer-paid meals.
Also, if you own a restaurant, the deduction applies if you give a worker meals during, or immediately before or after, his working hours. For example, if a waiter works through the breakfast and lunch periods, you can exclude from his wages the value of the breakfast and lunch you furnish in your restaurant for each day he works.
According to the IRS, giving an employee groceries, such as a grocery allowance, doesn't qualify for the deduction. However, there are court decisions that say otherwise. So, you should talk to your tax lawyer or other tax professional before you deduct these expenses.
Questions for Your Attorney
- Is there a limit or cap on how much I can deduct for qualifying meals I provide for my employees?
- What can I do if I provide meals for all of my employees but only some of them take advantage of it?
- Is there any tax benefit if I hire and pay my own workers to run a cafeteria in my office building? Is there a benefit for hiring a caterer to run it?