IRS: ‘Possibly No More Employer-Provided Meals’
Background on Employer-Provided Meals
Many companies provide employees with meals claiming it is for the employers’ benefit. It is especially popular among large technology companies, offering well-stocked cafeterias as a means to attract prospective employees; retain current employees and keep current employees at the workplace as opposed to leaving to eat which would take away from time that could be spent working. The IRS has begun to take a closer look at these tax-exempt benefits offered by these employers.
When making the determination of whether or not employer-provided meals are a tax-free benefit, the overriding consideration is if the meals are provided for the employer’s convenience. This determination of this is made on a case by case basis, taking into consideration all of the facts and circumstances.
Under current tax law employers do not include as taxable income to their employees any benefits which are supplied for their convenience. In IRS Publication 15-B, Employer’s Guide to Fringe Benefits, it is stated “You furnish the meals to your employee for your convenience if you do this for a substantial business reason other than to provide the employee with additional pay. This is true even if a law or an employment contract provides that the meals are furnished as pay. However, a written statement that the meals are furnished for your convenience is not sufficient.”
When evaluating whether or not employer-provided meals are furnished for the convenience of the employer, some of the factors that should be taken into consideration include whether:
- There are legitimate business reasons that only a short time is available for a meal;
- Employees need to be available during these hours for emergency calls; or
- There are insufficient eating facilities located nearby wherein the employee could not otherwise eat a proper meal in a reasonable period of time.
Conclusion
Through its National Tax Research Program which began in the spring of 2010, the IRS has been auditing taxpayers with respect to employment taxes including the tax treatment of fringe benefits provided to employees. The audit examinations were conducted to assist the IRS in understanding employment tax compliance and to aid the IRS in determining the extent to which taxpayers are complying with employment tax reporting rules, regulations and reporting. The inclusion by the IRS of this project in its most recent Plan signals that this is an area in which the IRS will be continuing to pay closer attention prospectively.
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The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals for your individual facts and circumstances.
