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Feeding Your Employees: What Can You Deduct?

Feeding Your Employees: What Can You Deduct?

By BarbaraWeltman, Guest Blogger
Published: November 19, 2014

It’s common for companies to pay for employee meals under a variety of circumstances. They may be on the road for company business or in your lunchroom snacking. From a tax perspective, the circumstances under which you furnish food determine the extent to which you can write off your costs.

Business travel

If you cover the cost of meals for employees who travel out of town on business, you can deduct 50% of the bill, including tips. (Special rules not discussed here apply for those in the transportation industry where workers are subject to “hours of service” limits.) The deduction is based on the actual cost, as determined by receipts, or reliance on a standard rate set by the government. There are two standard rates you can use (but the 50% limit applies in any event):

  • Federal per diem rate, which are set every October 1. The basic rate for starting October 1, 2014, is $46 per day, but higher rates ($51, $56, $61, $66, and $71) apply for travel to certain high-cost areas in the U.S.
  • IRS high-low substantiation rate, which may be adjusted every October 1. The rate starting October 1, 2014, is $65 for meals and incidental expenses for travel to high-cost areas within the continental U.S. (CONUS). The rate is $52 for travel to other areas in CONUS.

Note: You must obtain substantiation (receipts and other required information) from employees in order for your company to take the deduction.

Wining and dining customers and clients

When employees take a customer, client, vendor, or other business associate out for a drink or for breakfast, lunch, or dinner and the company picks up the tab, 50% of it is deductible on these conditions:

  • The expense must be legitimately for business (e.g., business is discussed), and not for personal reasons.
  • The cost is not lavish or extravagant.
  • There is proper substantiation of the expense given to the company.

Company activities

To foster company loyalty among your staff, you may occasionally host gatherings, such as a holiday party or a picnic. The cost of this activity is fully deductible; the 50% limit does not apply. The cost can cover not only food for staff but also their family or others. This type of benefit should be used only occasionally in order to remain fully tax deductible to you (and tax free to your staff).

Onsite eating facilities

Employees may eat at work:

  • Food service businesses. If you’re in this industry, including a hotel with onsite restaurants, and employees eat on your premises for your convenience, then all of your costs are deductible (this isn’t a separate deduction; the write-off is reflected in the cost of usual operational costs). For wait staff, this usually means meals before or after their shift. Note: Employees aren’t taxed on this benefit and you don’t owe any employment taxes on this benefit.
  • Snacks. Donuts and bagels, apples and bananas, soda and coffee: these snacks you provide at no charge to your staff are fully deductible by you. They’re viewed as a de minimis fringe benefit to employees who are not taxed on their receipt.

Large companies may have onsite cafeterias, with the cost of food subsidized for employees. This benefit typically isn’t offered at small businesses.

Other activities

You can fully deduct the cost of food for:

  • Hospitality suites at conventions your employees attend.
  • Meal money for an employee working overtime. As long as this doesn’t become a regular thing, it’s treated as a de minimis fringe benefit.

Conclusion

When it comes to the tax rules on deducting meals and other food costs, things are complicated. The IRS has begun to look closely* at Silicon Valley companies, such as Facebook and Google, that provide free food for workers in order to tax employees on this fringe benefit, so tax rules could change at any time. To learn more about feeding employees, see IRS Publication 463 (the 2014 edition hasn’t been posted yet, but the general rules from 2013 apply to 2014 and 2015).

* Denotes link to non-governmental website

About the Author:

BarbaraWeltman
Barbara Weltman

Guest Blogger

Barbara Weltman is an attorney, prolific author with such titles as J.K. Lasser's Small Business Taxes, J.K. Lasser's Guide to Self-Employment, and Smooth Failing as well as a trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and monthly e-newsletter Big Ideas for Small Business® and host of Build Your Business Radio. She has been included in the List of 100 Small Business Influencers for three years in a row. Follow her on Twitter: @BigIdeas4SB or at www.BigIdeasforSmallBusiness.com