The IRS is making headlines on the west coast as it reviews and challenges the practice of employers providing free meals to employees. Employers consider the free meals a non-taxable fringe benefit. The IRS believes this fringe benefit is employee wages.
Many fringe benefits offered as part of your employment are not considered taxable to you as an employee. The IRS publishes a fringe benefit guide for employers to help them navigate what benefits are income to the employee and what benefits are not. Common examples of non-taxable fringe benefits include; health insurance, certain life insurance, disability insurance and minor fringe benefits like employee outings and small branded items.
A number of large firms have been offering fairly elaborate free meals as part of their employment package. Firms like Google and Facebook use this fringe benefit to build employee morale and encourage their employees to spend more time on the job.
The IRS is now reviewing the interpretation of this “free” benefit and is challenging the taxability of the meals. If deemed taxable, each employee would need to include the fair market value of the meals as income on their W-2s.
What you need to know
|Know the standards. If a meal is considered to be “for the convenience of the employer” it is not deemed to be wages. This typically means meals during work hours for a work related purpose that benefits the employer.|
|Minimal value and frequency. Occasional meals or meals of minimal value are also not taxed as wages. This includes things like employee picnics.|
|Meals before and after hours. Meals provided before or after work could be wages. Common exceptions to this rule are employees of restaurants and employees at cafeterias. Another exception could be work environments that prohibit getting a meal during the workday.|
|It is in the IRS spotlight. Each year the IRS publishes a list of initiatives, called their Priority Guidance Plan. Reviewing the taxability of employee-provided meal benefits is on their agenda for 2014-15.|
If your employer provides free or reduced meals as part of your benefit package you can probably expect to see changes in the next year. Perhaps there is no such thing as a free lunch.
As always, should you have any questions or concerns regarding your situation please feel free to call.