This blog was last updated on June 27, 2021
The U.S. Treasury Department recently released its 2014 to 2015 Priority Guidance Plan. The document included a note that the IRS would provide guidance under sections 119 and 132 of the Internal Revenue Code (IRC) regarding employer-sponsored meals.
The issue of free employee meals has recently come to the fore because the agency has begun cracking down on fringe benefits, The Wall Street Journal reported. Many companies in Silicon Valley, California, such as Google, Twitter and Facebook, offer expansive free buffets, fully stocked kitchens and in-house eateries for their employees free of charge. The IRS said these benefits are taxable and has been addressing the issue during companies’ routine audits. In some cases, the agency has sought back taxes equal to 30 percent of the meals’ value.
While the Treasury Department’s plan said guidance would be given, no details were provided beyond that point. Some tax lawyers have already begun speculating on what advice is to come.
“I suspect this is going to be guidance on these free cafeterias, that the benefit has got to be included in income,” Anne Batter, an employment-tax attorney at Baker & McKenzie, told the Journal.
What does the IRC say about free meals?
The IRS currently lists guidance on fringe benefits in Publication 15-B. There are two exclusions for tax compliance obligations related to the value of meals furnished to an employee from his or her wages that are noted in the publication: The meals are provided on the business premises and for employers’ convenience. The former means the individual is employed on the premises, and the latter is circumstantial.
“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,” the publication read. “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.”
Businesses where employees work remotely, such as an oil rig, typically meet the requirements for the exclusion, the Journal reported. Mary Hevener, an employee-benefits attorney at Morgan, Lewis & Bockius LLP, told the source the meals are a noticeable benefit for employers, which is why many companies will want the exemption. Employees can spend less time on lunch, have access to healthier options and avoid talking business in a location outside of the organization.
