Here’s something to chew on: The IRS continues to clarify its position on deducting the cost of free food provided to employees. This time, office snacks get a delicious boost while other meals lose their deductibility entirely.
The Tax Cuts and Jobs Act (TCJA) reduced the tax breaks employers can receive when feeding employees, but the IRS did a poor job of explaining which foods and beverages got the boot. An IRS Technical Advice Memorandum (TAM) No. 20190301 was issued earlier this year to answer some of the more prevalent taxpayer questions that popped up on the issue. The main takeaways include these nuggets:
- Typical snacks can remain tax-free because they qualify as de minimis fringe benefits—too insignificant and too unquantifiable to take a bite out of employee paychecks.
- Free meals provided on company premises might be deductible if they’re provided to foster collaboration and innovation or employees must stay onsite to reasonably protect confidentiality and proprietary information, but only if employers have an outlining policy and data correlating the free meals to these business reasons.
- Free meals may also be deductible if employees must stay onsite to reasonably stay safe, to access healthy meals, to be available in case of emergencies, or can’t get to another dining option within a reasonable break period (but, again, employers should have an outlining policy and data correlating the free meals to these reasons).
- Food delivery services like Grubhub and DoorDash have altered the IRS’s viewpoint on whether onsite meals are necessary for the reasons above.
- The taxability of food is also altered when a dedicated eating facility like a staff cafeteria—where meals are prepared and consumed all in one place—is provided.