As the 2018 tax deadline looms, many independent contractors and small businesses are working to get their taxes filed on time. One item that small business owners encounter is deciding when employer-provided meals are taxable. The meal and entertainment deduction rules for taxes can be hard to figure out. Understanding the guidelines is crucial for reporting the amount of taxable and non-taxable money spent on meals. Let’s take a look at a few scenarios where employer meals may and may not be taxable.
How It Works
Employers and their employees can reap great tax benefits in regards to company-provided meals. The employer takes a tax write-off on the money they are spending on meals and the employees get the tax-free benefit of free food. Pretty much anything that the employer gives their employees as part of their compensation can be used as taxable income, including meals. However, the big caveat to this is that if the meals are provided on the employer’s premises and for the convenience of the employer, then the meals become 100% tax deductible for the employer and tax-free for the employee. De Minimis meals, such as coffee and donuts, do not also fall into this category as they are classified as having a minimal value that makes accounting for them unreasonable.
The Break-Down
For the employer to benefit from 100% deductible employee-provided meals on the employer’s premises, the company must:
- lease or own the building that the meals are being provided in
- be run by company employees or a contracted third party
- be on or near the business premises
- serve food sometime before, during, or immediately after work hours
For a meal to be considered as a convenience for the employer, the meal must meet one of these business requirements:
- Employees must be available for emergency calls
- Only short meal breaks are provided
- Proper meals are not available nearby
There are many situations in which taxation does and does not apply for meal and entertainment deductions. If the meal is supplied after hours because an employee’s work duties prevented an employee from eating at a decent time, it’s taxable. If the company provides employee meals on a non-work day, they are not taxable. Restaurants that provide meals for their employees during, after, or before their shifts are taxable.
There are many cases where employer-provided meals are and aren’t taxable. Being aware of the difference makes filing your business taxes much easier. TPI Group is one of the largest accounting and financial advisory firms in Northern Virginia. We offer a progressive and holistic approach to serving individuals, businesses, and families by providing our clients with tax-efficient strategies and safe financial planning options. For more financial tips and advice, contact us today!
REMEMBER: April 15th is the deadline for filing your 2018 taxes!