Tax Treatment of Employer-Provided Meals: What’s New?

Many employers are struggling to hire and retain employees during the COVID-19 pandemic and the resulting “great resignation.”

If you’re one of those employers (or about to become one), examine your use of tax-free fringe benefits. It’s one of the proven ways to help keep good employees. Such benefits are deductible by you, the employer, but tax-free to the employee.

Common examples of tax-free benefits are health insurance and paid vacation.

But there is another potential employee fringe benefit: free meals (usually, lunch). Free meals not only make your employees happy, but keep them on the premises and generally make them more productive as well.

The deduction is scheduled to end in 2026. So, if this is a perk you want to give your employees, the time is now.

But not all employee meals are a tax-free fringe benefit. Meals qualify for tax-free treatment if they are furnished

• in kind (no cash alternative for not taking the meal),
• on the employer’s business premises, and
• for the convenience of the employer.

The most common way to pass the convenience test is to establish that employees can’t get their own meals within a reasonable time. But the widespread availability of meal delivery services such as Grubhub, DoorDash, and Uber Eats makes it harder for the employer to pass the convenience test.

Employers who want to provide tax-free meals to employees under the “not enough time” test should prohibit use of meal delivery services and document why such services are not viable for them—for example, due to disruption or security concerns.