Serve up on-site, tax-free, deductible meals for employees
Do you provide a company cafeteria or other on-site meals for employees? This can be a valuable tax-free fringe benefit to employees and help attract and retain workers.
Alert: A crackdown could be coming. The IRS has implied it might take steps to modify the rules, especially as they pertain to technology-based companies.
Tech companies are in the cross hairs in the wake of recent media reports about employers offering them elaborate dining options.
Here’s the whole story: Under Section 119 of the tax code, meals provided to employees are tax-free if they are furnished for the convenience of the employer and served on the premises. Meals are furnished for the employer’s convenience only if there’s a substantial noncompensatory business purpose. The arrangement can’t be disguised compensation.
A “substantial noncompensatory business purpose” exists when:
- Meals are for employees who must be on call for emergencies.
- The time period for meals is short (e.g., 30-45 minutes) because of the nature of the business.
- Employees reasonably can’t other-wise obtain meals off-premises (e.g., the worksite is in a remote area).
Keep it legal: If more than half of the employees are furnished meals for the employer’s convenience, all employees are treated as being furnished meals for the employer’s convenience.
Generally, only 50% of the cost of meals and entertainment are deductible by an employer, but your business may deduct 100% of the cost of meals that qualify as a de minimis fringe benefit, such as a cafeteria on the business premises.
This exclusion is available for highly compensated employees only if all workers have access to the facility. You won’t qualify if you use a private dining room for higher-ups.
Bottom line: If your business provides meals at a cafeteria or other facility on the business premises, and the meals are provided to more than half of the employees for your convenience, the meals are tax-free to all employees. Plus, the cost is 100% deductible by your business.
Also on the menu: Better employee health
If you offer employees meals, consider it a chance to encourage healthy eating. Providing immune-boosting foods in the company cafeteria could help employees ward off colds and flu. Health care company Geneia suggests giving away oranges, raw vegetables, whole-grain cereals, green tea and other healthy snacks with vitamins and antioxidants that prevent illness. Other tips:
- Align meals and snacks with your wellness program. A business that serves doughnuts at staff meetings sends mixed messages if it also rewards them for losing weight and lowering their cholesterol.
- Accommodate employees with dietary restrictions, like those who don’t eat meat, wheat or dairy products.
- Identify ingredients so people with food allergies will know to stay away from snacks that contain nuts or wheat, for instance.
- Set a savory trap to lure employees to lunchtime presentations about benefits, nutrition, financial planning or other topics.
- Use food as a recruiting tool. When Yahoo started offering free meals to employees shortly after CEO Marissa Mayer took over, the new exec explained to investors that the perk was one way to make the company “the absolute best place to work.”