Many employers furnish meals to their employees as a benefit to working in the restaurant. But, as is often the case, a tax question is at stake: Are these meals fully deductible or are they subject to the 50 percent meals and entertainment limit? The IRS has provided guidance this question.
Generally you can only deduct 50 percent of the cost of business meals and entertainment. However, there are a few exceptions that allow employers to deduct the full cost of providing meals to employees. You can deduct the full value of the meals you provide to employees if any of the following apply:
- You include the value of meals in the employee’s wages.
- Meals are furnished to employees at an employer’s restaurant or catering service.
- Meals are furnished to your employees as part of the expense of providing recreation or social activities, such as a summer picnic or holiday party.
- The meals qualify as a de minimis fringe benefit. For meals to qualify as a de minimis fringe benefit, the meal has to have so little value and happen so infrequently that the accounting for the cost of the meal would be unreasonable or administratively impracticable. This includes meals furnished on your business premises for the convenience of the employer if more than half of the employees to whom these meals are furnished on the employer’s premises are furnished for the convenience of the employer.
The term “business premises” has been interpreted to include a location at which the employee performs significant duties or the employer conducts significant business activities, even if it is away from the main business location. It has also been held that the location need not be employer-owned.
To satisfy the “convenience of the employer” test, the primary reason for providing the meals must be to benefit the employer, i.e., to enable the employee to do his job rather than for substantial noncompensatory reasons. Examples include making sure workers are available for emergency calls during meal breaks or the nature of your business makes it necessary to limit meal breaks to short periods of time, like 30-45 minutes. Also, there is an exception for restaurant employees who are provided a free or discounted meal consumed immediately before work, during work, or immediately after work. In that situation the employee may exclude the value from gross income.
The “convenience of the employer” test and the “business premises” requirement may be difficult to apply to particular circumstances, therefore, if you have questions about the deductibility of meals you provide to your employees, please call our office.