Deductions for employee meals slashed under new tax law

The Tax Cuts and Jobs Act changes the deductibility on food and beverage expenses for employers.

Under the new law there is a 50 percent limit for the employer’s expenses of providing food and beverages to employees at an eating facility that qualifies as a de minimis fringe benefit.

Before The Tax Cuts and Jobs Act, employers could fully deduct their cost of business meals that were excludable from the income of employees because they were provided at an employer-operated eating facility for the convenience of the employer.  This covers meals provided via an in-house cafeteria or otherwise on the employer’s premises (including meals provided to employees at an employer operated restaurant).

Starting in 2018, employers can only deduct the cost of 50 percent of these meals.  Further, starting in 2026, no deduction is allowed for these meals provided to employees.

Therefore, meals given away free are now only deductible 50 percent for income tax purposes.  In addition, meals sold at a discounted price that does not cover the employer’s cost are now only 50 percent deductible for income tax purposes.

For example, if your food and paper cost typically represent 31 percent of your sales price, and if you sell employees food at a 50 percent discounted sales price, then you have covered your cost.  Alternatively, if you sell employees food at an 80 percent discounted price, you have not covered your cost.  In this case, the portion that represents your cost is only deductible 50 percent for income tax purposes.

Please give us a call if you would like to discuss this further.