Employee Handbook | Regulatory Updates | Risk Management

When Are Employee Meals Taxable?

Aug 6, 2019, 1:45 PM

(from Lexology) Earlier this year, the IRS released guidance regarding when employers should include the value of employer-provided meals and snacks in employee income, making the meals subject to employment tax. Employers should include the value of employer-provided meals in employee income unless the employer can (1) demonstrate that the meals were provided for a substantial noncompensatory business reason and (2) substantiate that the employer enforces the policies and practices underlying this substantial noncompensatory business reason.

While fringe benefits must usually be included in an employee's gross income, one exception allows an employer to exclude the value of meals provided for the convenience of the employer, if the meal is furnished on the employer’s business premises and provided for a substantial noncompensatory business reason.

Whether meals are furnished for a substantial noncompensatory business reason requires an analysis of facts and circumstances. U.S. Treasury Department regulations provide several examples, including these purposes:

To have the employee available for emergency calls.
To restrict the employee to a short meal period.
To enable the employee to secure a meal within a reasonable meal period because the employee could not otherwise do so.

All meals furnished to employees on the employer’s business premises will be treated as being for the convenience of the employer as long as more than half of the employees on the employer’s business premises are furnished meals for this purpose.

Additionally, the value of meals furnished to employees at an employer-operated eating facility is excludable from income as a de minimis fringe benefit, as long as the revenue from the facility equals or exceeds the direct operating costs of the facility.

Finally, if the value of the service provided is so small as to make accounting for it unreasonable or administratively impracticable, it can be excluded.

What this means for independent schools

"Most independent schools can substantiate the interpretation of this guidance to mean that school-provided lunch is tax-free to employees if the school requires teachers and staff to remain on campus for lunch and may assign specific duties during or around the lunch period, given that most schools specify the window during which the meal is offered," said Jennifer Hillen, vice president of professional development and business affairs at NBOA. "There are other potentially valid reasons. It would be helpful for further substantiation if such parameters are outlined in the employee handbook."