Free food? Before Ringing the Dinner (or Lunch) Bell, Consider IRS Tax Laws
By: Michelle Higgins
Many companies are looking for ways to reward employees for their hard work — or are just trying to find creative ways to attract and retain workers.
Either way, a seemingly easy (and delicious) benefit to offer employees is free food. Who doesn’t appreciate a free meal? Well, apparently the Internal Revenue Service (IRS) doesn’t.
While snacks are okay per IRS rules (think coffee, cookies, donuts, popcorn), full-blown meals inch ever so close to the taxable income line for employees. Snacks, even if offered on a regular basis, are generally a low-value item available in a communal area and can remain tax-free. Meals are a different story (other than the occasional meal provided at a party, for example)
Internal Revenue Code (IRC) Section 119 provides narrow guidance on circumstances in which employers can offer meals to employees without counting it toward employees’ taxable income. For instance, employee meals that are “provided on the employer’s business premises for the convenience of the employer are excludable from the employee’s income.”
So, what does that mean?
Unless an employer can provide a significant business reason for providing free meals to employees and has the process documented in a policy, chances are the value of the meals is taxable.
If, for example, employees must be available for emergency calls while they’re working, or they have a very limited break time that doesn’t allow them to leave the premises for a meal, then MAYBE free meals could be excluded from employees’ taxable income.
With countless food delivery services available these days, an employer’s argument saying there were no other meal options might be pretty weak if the time came to defend its case.
The best bet for employers that have had their fill of IRS tax laws is to fire up the coffee pot, put out some donut holes or fresh fruit, and call it a day.