Tasty Tax Morsel – The IRS Wants A Bite!

May 20, 2014

My colleague, Bryan Symes, posted the other day about including the value of employer provided meals when calculating overtime compensation.

Employers often provide delicious edibles to promote healthy eating, improve morale, and foster collaboration over lunch. Employers, however, provide those meals, snacks, and beverages to employees without chewing over the tax implications.

Meals provided by employers are generally taxable fringe benefits. Several exceptions, however, exclude chow from fringe benefit taxation under specific circumstances.

De minimis meals, such as coffee, soda, doughnuts, or meals that have so little value, that accounting for them would be unreasonable or administratively impractical are not taxable as fringe benefits. Think of this as the Homer Simpson, “Mmm, donuts,” exception.

Meals provided on an employer’s premises for the convenience of an employer are also non-taxable fringe benefits. Meals are provided for the convenience of the employer if the meals are provided for a substantial business reason other than to provide the employee with additional pay. Employers and the IRS have long battled Iron Chef style in Tax Court Stadium over what constitutes “a substantial business reason.” Employers have argued, and many have agreed, there are real benefits for workers having unplanned, unstructured face-to-face interaction over lunch, but whether those benefits rise to the level of “a substantial business reason” is unclear. Despite spicy arguments from employers, the IRS continues to seek a bite out of employee meals.

There are other exceptions to the taxation of meals as a fringe benefit so before you provide your employees their next meal, stop and mull over the tax consequence.

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