Sneak peek at the IRS’ new guidance on meals

April 19, 2015

The IRS hasn’t addressed whether employer-provided meals are taxable to employees in decades. So it caused some alarm when the item showed up on its 2014-2015 priority guidance plan. According to Paul Carlino, chief, Employment Tax Branch 1, IRS’ Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities), the IRS is getting ready to issue new regulations and perhaps a revenue procedure.  

Pizza’s good, gourmet’s out. The IRS is auditing employers that provide cost-free and tax-free meals to employees and in all likelihood, the guidance will address that issue. Employer-provided meals are tax free to employees under the following circumstances:

•  Meals provided on a de minimis basis, such as occasional morale-boosting breakfasts or lunches, food provided at company meetings or picnics or meals (or meal money) provided to employees who must work late

•  Meals provided in a company cafeteria, if the annual revenue equals or exceeds its direct operating costs

•  Meals provided on your premises and for your convenience,  such as meals furnished to em­­ployees who must be available to handle emergencies or customer questions; the nature of your business necessitates short meal periods; or you’re located in a remote location where employees can’t eat out and return in a reasonable amount of time.

Meal plans. Get ahead of the IRS by reviewing your meal policy now. Be on the lookout for the following:

•  Cash or meals—You will fail the convenience-of-the-employer test if employees can choose between cash and meals

•  Creating emergencies—You must have proof that emergencies have occurred in the past and can reasonably be expected to occur in the future

•  Using a narrow vicinity—Auditors can plainly see where you’re located in relation to eating facilities

•  Not exercising other options in lieu of short meal periods—Other options may include extending employees’ workdays or rescheduling meal periods so they no longer coincide with your company’s peak workload.