Academic journal article Journal of Accountancy

Employer-Provided Employee Meals

Academic journal article Journal of Accountancy

Employer-Provided Employee Meals

Article excerpt

Employers in certain businesses and industries that provide employees with meals during the workday can deduct the costs of those meals if they are ordinary and necessary business expenses. As a rule, the IRS limits the business meals deduction to 50% of cost, although it may allow a full deduction if the costs qualify as a de minimis fringe benefit. Such a benefit means employees receive the meals in a nondiscriminatory eating facility located on or near the employer's business premises and the facility's revenue must equal or exceed its direct operating costs.

The Taxpayer Relief Act of 1997 changed the rules somewhat. Now employers can receive a full deduction for the cost of employee meals even if the facility's revenues do not exceed its costs if those meals are provided primarily to employees for a "substantially noncompensatory business reason of the employer."

SUBSTANTIALLY NONCOMPENSATORY BUSINESS

The IRS considers the following factors when determining whether a substantially noncompensatory business reason is present:

* Timing of the meal. The employer must provide meals to employees on a workday during the work shift. For food-service employees (or if extenuating circumstances prevent a meal during shifts), the meal must be provided immediately before or after a shift. In addition, this means no more than one meal per normal eight-hour shift and does not apply to meals on days off or at other nonworking times.

* Availability during emergencies. Under this factor, an employer requires that employees be available during meal periods to respond to emergencies. The central issue here is the definition of emergency: While emergencies generally are thought of as events of a nature or type that have happened in the past or are reasonably expected to happen in the future, some courts have defined them much more narrowly, as "unexpected serious occurrences requiring prompt actions." Another issue is whether this factor applies to business needs that may not be considered true emergencies; an example is employees who eat at their desks so they can respond to urgent business situations.

* Short lunch period due to nature of employer's business. This usually refers to businesses that have peak workloads during the employees' lunch time. …

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