Return to the workplace, but provide your own snacks; lay the blame on Congress.
In an effort to attract employees back to the office, companies are increasingly offering perks such as on-site gyms, childcare facilities, and free food and beverages. However, changes to tax laws have impacted the deductibility of these expenses for employers.
As of January 1, 2023, the Tax Cuts and Jobs Act (TCJA) has altered the tax treatment of meals and entertainment expenses. Entertainment expenses are no longer deductible, and section 274(o) disallows 100% of the deduction for expenses for food or beverages provided to employees starting in 2026.
Currently, employer-provided meals, such as those served in an in-house cafeteria for the convenience of the employer, are generally 50% deductible. This applies to most businesses providing meals for employees. The Consolidated Appropriations Act, 2021, provided a temporary 100% deduction for food and beverages purchased from restaurants between December 31, 2020, and December 31, 2022. After this period, the deduction reverts to the standard 50% for meals.
It's important to note that as of January 1, 2023, there are no specific industries exempt from the expiration of these deductions. The temporary 100% deduction for restaurant meals expired on December 31, 2022, and applies broadly across all industries that were eligible. The upcoming expiration of snack deductions in 2025 will affect all businesses providing these perks unless further legislation changes this policy.
The One Big Beautiful Bill Act (OBBBA) extended many expiring tax provisions from the TCJA, but did not extend the rules that temporarily allowed deductions for snacks and employer convenience perks. However, two notable exceptions have been carved out in OBBBA, allowing the tax deduction for snacks and employer convenience perks to continue for the Alaska fishing industry and restaurants.
The elimination of the tax deduction for employee meals will raise $32.5 billion over the next decade. Despite this, employers continue to provide free meals and snacks as a way to lure workers back to the office.
In the past, employers who provided meals for their employees were entitled to tax breaks under sections 119 and 132(e) of the tax code. However, these breaks are no longer applicable, with the exception for the Alaska fishing industry and restaurants. The cost of holiday parties for employees will still be 100% deductible, and business meals, if say, an employee is taking a potential client to dinner, are now 50% deductible.
A 2023 survey found that 80% of workers say catered meals encourage them to come into the office, and nearly two-thirds of those who receive free meals say it helps them eat healthier food. Additionally, seven out of ten tax professionals said they'd be more likely to stay at their company if they received free meals during the busy season. Over half (55%) of those who don't receive free meals say they would feel less stressed if they did.
As the landscape of tax deductions for employer-provided meals and snacks continues to evolve, it's essential for businesses to stay informed and adjust their policies accordingly.
- The Tax Cuts and Jobs Act (TCJA) has modified the tax treatment of meals and entertainment expenses for businesses, with entertainment expenses being non-deductible and food or beverage expenses for employees becoming disallowed for 100% deduction starting in 2026.
- In the wake of changes to tax laws, deductions for employee meals are no longer applicable for most businesses, but there are exceptions for the Alaska fishing industry and restaurants, with the cost of holiday parties for employees still being 100% deductible.
