A growing trend with companies that are looking to attract top talent is to entice potential employees with benefits that include more than just salary and paid time off. Sometimes this includes the best swag, for example company-branded t-shirts, headphones, etc, and sometimes this includes free meals and snacks. But at what point do these benefits need to be classified as “income” and taxed?
That sounds like the end of the “free lunch”?
Not necessarily. The current rules state that providing occasional food and beverages to workers, like coffee and snacks, is not taxable. Also, full meals that are provided on-site are not considered taxable as long as they’re served for the convenience of the employer.
Well, this is getting complicated….
Yes, it is. What the IRS considers “convenient” may differ greatly from what the employee or employer does. Does “convenient” only mean when employees are required to work late or extra weekend hours? Or can “convenient” mean that there are no close restaurants for employees to get lunch? Once (and if) the IRS decides to take a hard stand on the matter, it could take 9 months to a year to enforce. Even more time for enforcement could be added if companies like Facebook, Twitter, and Google decide to fight the new tax. In order for a tax to be placed on free meals, the IRS would have to prove that the meals are a perk, and not solely for the convenience of the employer, which will be difficult.
What about free coffee and occasional snacks?
The average employee, that does not receive a gourmet selection of meals daily, but may have free coffee, the occasional snack, or free soda will not be affected. These items are considered “De Minimis Fringe Benefits”, meaning that the IRS considers these items of little importance, and not worth accounting for.
This is something that is of growing interest and priority for the IRS, and the organization has added it to the list of over 300 top tax priorities for 2015. If the meals are considered “taxable” then the cost of the food is considered income to the employees, and the employer would be responsible for payroll tax, while the employee would owe income tax as well. For now, however, enjoy your free lunch while it lasts!
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These free resources should not be taken as tax or legal advice. Content provided is intended as general information. Tax regulations and laws change and the impact of laws can vary. Consult a tax advisor, CPA or lawyer for guidance on your specific situation.