Are Your Employee Meals Taxable?

It's nice to have a team get together now and again or bring lunch for your hard-working team. But while providing a meal can be a nice perk for employees, it's crucial for both employers and employees to understand the tax implications associated with such benefits.

As a general rule, the IRS takes the position that employee benefits, whether paid to them directly or indirectly, are taxable unless there is a specific exclusion. Exclusions with respect to employee meals include:

Meals When There is an Overnight Stay

Meals provided during an overnight stay where there is a bona fide business purpose for the overnight stay may be excluded from taxable income.

De Minimus Fringe Benefit

According to IRS Publication 15-B, "Employer's Tax Guide to Fringe Benefits" employers can exclude any occasional meal you provide to an employee if it has so little value that accounting for it would be unreasonable or administratively impracticable. The exclusion applies to the following items:

  • Coffee, doughnuts, or soft drinks
  • Occasional meals or meal money provided to enable an employee to work overtime
  • Occasional parties or picnics for employees and their guests

Whether providing meals can be considered "occasional" depends on the specific facts and circumstances. Certainly the more frequently it occurs, the more likely it is to be considered taxable.

Meals furnished on your business premises for the employer's convenience.

Whether a meal is furnished for the employer's convenience depends on all the facts and circumstances, but it must be done for a substantial business reason other than to provide the employee with additional pay. The following are some examples that could be considered meals furnished for the convenience of the employer:

  • Emergency calls. Providing meals to employees so they can be available for emergency calls during the meal period is excludable from income if you can show emergency calls have occurred, or can reasonably be expected to occur, and the result of a call would be for an employee to perform their job during the meal period. This exception would not likely apply if the employee was simply around to answer routine phone calls.
  • Short meal periods. If the nature of your business (not merely a preference) restricts an employee to a short meal period (30 or 45 minutes) and the employee can't expect to eat elsewhere in such a short time, the provided meal would be excludable from taxable income. For example, meals can qualify if your peak workload occurs during the normal meal period.
  • Proper meals aren't otherwise available. Meals provided during working hours if the employee can't otherwise get proper meals within a reasonable period of time may qualify for the exclusion. For example, if there are insufficient eating facilities near the place of employment, the meal may be excludable. It would be more difficult to qualify for this exclusion if you have food delivery options available, such as Doordash or Grubhub

The IRS also provides some examples that are specifically included employee wages unless they qualify for an exclusion, including:

  • Meals provided before or after work
  • Meals furnished on non-workdays
  • Meals provided someplace other than the employer's business premise, unless one of the other exclusion criteria is met
  • Meals provided to improve general morale, or for employee goodwill
  • Cash or gift cards given to employees, even if the intent is for them to be used towards meals

In summary, the taxability of employee meals depends on various factors, including the nature of the meal, the reason for providing it, and the frequency of such benefits. The examples above are not all-inclusive. Employers should carefully review the IRS guidelines to ensure compliance with tax regulations and to avoid unexpected tax implications for both the company and its employees. Clear communication between employers and employees regarding the tax treatment of meals can help prevent misunderstandings and ensure that everyone is aware of the tax implications associated with this aspect of employee compensation.