The 2017 tax reform reconciliation act, commonly referred to as the Tax Cuts and Jobs Act (TCJA), revised many tax-favorable fringe benefits for employers.
While some benefits have been reduced or excluded, employee meals and snacks are still an allowable employer deduction. The rules are fairly detailed and, if met, employers can receive tax-favorable treatment that benefits their employees.
It’s important to note that before taxpayers can apply the rules below, deductible business expenses must have sufficient evidence corroborating the deduction, must be ordinary and necessary, and can’t be lavish or extravagant.
Here’s an overview of the rules that apply when providing meals to employees and some important definitions.
Employer-provided meals are tax-free to the employee. They’re also 50% deductible if they’re provided on the premises of the employer and are offered for the convenience of the employer. For restaurant employers, employee shift meals are still 100% deductible, as long as they meet certain rules and are furnished at an employer-operated eating facility.
Employer Business Premises
Employer business premises refer to the location where employees work, or, in some circumstances, to an eating facility or cafeteria. Employer-operated eating facilities must meet the following criteria:
- Be owned or leased by the business
- Be employer operated—that is, by employees of the business—or operated by a third party under a contract
- Be located on or near the business premises
- Provide food or drinks during or immediately before or after the workday
- Be nondiscriminatory
Convenience of the Employer
A business passes the convenience-of-the-employer test if it provides meals for a substantial business reason. This means the employer must provide meals on the business premises at least 50% of the time for a substantial, noncompensatory business reason.
Meals are considered to be furnished for the convenience of the employer if policies require the employer to provide meals for employees to properly perform his or her duties, and the employer-provided meals are necessary for the employee to properly perform his or her duties.
The question of whether meals are furnished for the convenience of the employer, and therefore 50% deductible, is based on relevant facts and circumstances in each situation. The IRS Technical Advice Memorandum (TAM) 201903017, published on January 18, 2019, provides additional commentary and guidance regarding their current tax position.
The value of employer-provided snacks is specifically excluded from gross income as a de minimis fringe benefit. However, under TCJA, it’s now only 50% deductible to the employer instead of 100% deductible.
A de minimis fringe benefit is any property or service so small that accounting for it is unreasonable or administratively impractical. The frequency with which an employer provides similar fringe benefits to their employees must be taken into account when determining these benefits.
The IRS intends to publish more guidance on the deductibility of expenses for business meals, but it seems likely that snacks provided to employees in snack areas on the business premise of the employer generally will be a 50% deductible business expense. The deduction for meals provided for the convenience of the employer, employer-operated cafeteria expenses, and snacks are scheduled to be eliminated in 2026.
The rules for employer-provided meals for the convenience of the employer and providing de minimis fringe benefits in the nature of snacks to employees have long-standing guidance that has been further formalized in TAM 201903017. This newly provided guidance shouldn’t be viewed in isolation; rather, it should be considered part of a taxpayer’s overall fringe benefit tax-planning strategy.
We’re Here to Help
To learn more about evaluating the implications of the new fringe benefit guidance, and how we can work with you to help evaluate your benefits, contact your Moss Adams professional. You can also visit our dedicated tax reform page to learn more.