Fringe Benefits to Employees
Meals
This section discusses the exclusion rules that apply to de minimis meals and meals on your business premises.
You can exclude any occasional meal you provide to an employee if it has so little value (taking into account how frequently you provide meals to your employees) that accounting for it would be unreasonable or administratively impracticable. The exclusion applies, for example, to the following items.
Coffee, doughnuts, or soft drinks.
Occasional meals or meal money provided to enable an employee to work overtime. However, the exclusion doesn’t apply to meal money figured on the basis of hours worked (for example, $2.00 per hour for each hour over 8 hours), or meals or meal money provided on a regular or routine basis.
Occasional parties or picnics for employees and their guests.
Employee.
For this exclusion, treat any recipient of a de minimis meal as an employee.
Employer-operated eating facility for employees.
The de minimis meals exclusion also applies to meals you provide at an employer-operated eating facility for employees if the annual revenue from the facility equals or exceeds the direct operating costs of the facility. Direct operating costs include the cost of food, beverages, and labor costs (including employment taxes) of employees whose services relating to the facility are performed primarily on the premises of the eating facility. Therefore, for example, the labor costs attributable to cooks, waiters, and waitresses are included in direct operating costs, but the labor cost attributable to a manager of an eating facility whose services aren’t primarily performed on the premises of the eating facility aren’t included in direct operating costs.
For this purpose, your revenue from providing a meal is considered equal to the facility’s direct operating costs to provide that meal if its value can be excluded from an employee’s wages as explained under Meals on Your Business Premises , later. If you provide free or discounted meals to volunteers at a hospital and you can reasonably determine the number of meals you provide, then you may disregard these costs and revenues. If you charge nonemployees a greater amount than employees, then you must disregard all costs and revenues attributable to these nonemployees.
An employer-operated eating facility for employees is an eating facility that meets all the following conditions.
You own or lease the facility.
You operate the facility. You’re considered to operate the eating facility if you have a contract with another to operate it.
The facility is on or near your business premises.
You provide meals (food, drinks, and related services) at the facility during, or immediately before or after, the employee’s workday.
Exclusion from wages.
You can generally exclude the value of de minimis meals you provide to an employee from the employee’s wages.
Exception for highly compensated employees.
You can’t exclude from the wages of a highly compensated employee the value of a meal provided at an employer-operated eating facility that isn’t available on the same terms to one of the following groups.
All of your employees.
A group of employees defined under a reasonable classification you set up that doesn’t favor highly compensated employees.
For this exclusion, a highly compensated employee for 2020 is an employee who meets either of the following tests.
The employee was a 5% owner at any time during the year or the preceding year.
The employee received more than $125,000 in pay for the preceding year.
You can choose to ignore test (2) if the employee wasn’t also in the top 20% of employees when ranked by pay for the preceding year.
Section 13304 of P.L. 115-97 changed the rules for the deduction of food or beverage expenses that are excludable from employee income as a de minimis fringe benefit. For amounts incurred or paid after 2017, the 50% limit on deductions for food or beverage expenses also applies to food or beverage expenses excludable from employee income as a de minimis fringe benefit. However, food or beverage expenses related to employee recreation, such as holiday parties or annual picnics, aren’t subject to the 50% limit on deductions when made primarily for the benefit of your employees other than employees who are officers, shareholders or other owners who own a 10% or greater interest in your business, or other highly compensated employees. The new rules for the deduction limits on meals are discussed in chapter 2 of Pub. 535. While your business deduction may be limited, the fringe benefit exclusion rules still apply and the de minimis fringe benefits may be excluded from your employee’s wages, as discussed earlier.
You can exclude the value of meals you furnish to an employee from the employee’s wages if they meet the following tests.
They are furnished on your business premises.
They are furnished for your convenience.
If you allow your employee to choose to receive additional pay instead of meals, then the meals, if chosen, aren’t excluded. The exclusion also doesn’t apply to cash allowances for meals.
On your business premises.
Generally, for this exclusion, the employee’s place of work is your business premises.
For your convenience.
Whether you furnish meals for your convenience as an employer depends on all the facts and circumstances. You furnish the meals to your employee for your convenience if you do this for a substantial business reason other than to provide the employee with additional pay. This is true even if a law or an employment contract provides that the meals are furnished as pay. However, a written statement that the meals are furnished for your convenience isn’t sufficient.
Meals excluded for all employees if excluded for more than half.
If more than half of your employees who are furnished meals on your business premises are furnished the meals for your convenience, you can treat all meals you furnish to employees on your business premises as furnished for your convenience.
Food service employees.
Meals you furnish to a restaurant or other food service employee during, or immediately before or after, the employee’s working hours are furnished for your convenience. For example, if a waitress works during the breakfast and lunch periods, you can exclude from her wages the value of the breakfast and lunch you furnish in your restaurant for each day she works.
Example.
You operate a restaurant business. You furnish your employee, Carol, who is a waitress working 7 a.m. to 4 p.m., two meals during each workday. You encourage but don’t require Carol to have her breakfast on the business premises before starting work. She must have her lunch on the premises. Since Carol is a food service employee and works during the normal breakfast and lunch periods, you can exclude from her wages the value of her breakfast and lunch.
If you also allow Carol to have meals on your business premises without charge on her days off, you can’t exclude the value of those meals from her wages.
Employees available for emergency calls.
Meals you furnish during working hours so an employee will be available for emergency calls during the meal period are furnished for your convenience. You must be able to show these emergency calls have occurred or can reasonably be expected to occur, and that the calls have resulted, or will result, in you calling on your employees to perform their jobs during their meal period.
Example.
A hospital maintains a cafeteria on its premises where all of its 230 employees may get meals at no charge during their working hours. The hospital must have 120 of its employees available for emergencies. Each of these 120 employees is, at times, called upon to perform services during the meal period. Although the hospital doesn’t require these employees to remain on the premises, they rarely leave the hospital during their meal period. Since the hospital furnishes meals on its premises to its employees so that more than half of them are available for emergency calls during meal periods, the hospital can exclude the value of these meals from the wages of all of its employees.
Short meal periods.
Meals you furnish during working hours are furnished for your convenience if the nature of your business (not merely a preference) restricts an employee to a short meal period (such as 30 or 45 minutes) and the employee can’t be expected to eat elsewhere in such a short time. For example, meals can qualify for this treatment if your peak workload occurs during the normal lunch hour. However, they don’t qualify if the reason for the short meal period is to allow the employee to leave earlier in the day.
Example.
Frank is a bank teller who works from 9 a.m. to 5 p.m. The bank furnishes his lunch without charge in a cafeteria the bank maintains on its premises. The bank furnishes these meals to Frank to limit his lunch period to 30 minutes, since the bank’s peak workload occurs during the normal lunch period. If Frank got his lunch elsewhere, it would take him much longer than 30 minutes and the bank strictly enforces the time limit. The bank can exclude the value of these meals from Frank’s wages.
Proper meals not otherwise available.
Meals you furnish during working hours are furnished for your convenience if the employee couldn’t otherwise get proper meals within a reasonable period of time. For example, meals can qualify for this treatment if there are insufficient eating facilities near the place of employment. For an example of this, see Example of qualifying lodging , earlier in this section.
Meals after work hours.
Generally, meals furnished before or after the working hours of an employee aren’t considered as furnished for your convenience. However, meals you furnish to an employee immediately after working hours are furnished for your convenience if you would have furnished them during working hours for a substantial nonpay business reason but, because of the work duties, they weren’t obtained during working hours.
Meals you furnish to promote goodwill, boost morale, or attract prospective employees.
Meals you furnish to promote goodwill, boost morale, or attract prospective employees aren’t considered furnished for your convenience. However, you may be able to exclude their value as discussed under De Minimis Meals , earlier.
Meals furnished on nonworkdays or with lodging.
You generally can’t exclude from an employee’s wages the value of meals you furnish on a day when the employee isn’t working. However, you can exclude these meals if they are furnished with lodging that is excluded from the employee’s wages. See Lodging on Your Business Premises , earlier in this section.
Meals with a charge.
The fact that you charge for the meals and that your employees may accept or decline the meals isn’t taken into account in determining whether or not meals are furnished for your convenience.
S corporation shareholder-employee.
For this exclusion, don’t treat a 2% shareholder of an S corporation as an employee of the corporation. A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation’s stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but don’t treat the benefit as a reduction in distributions to the 2% shareholder. For more information, see Revenue Ruling 91-26, 1991-1 C.B. 184.