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EMPLOYER TAX BRIEF
Employer-provided meals will face different tax treatment next year
For years, employer-provided meals — such as free lunches, breakroom snacks, and food offered to staff working late shifts or overtime — enjoyed fairly beneficial tax treatment.
However, for most organizations, the tax rules will tighten considerably beginning in 2026. So, if your employees are accustomed to receiving meals in the workplace, it’s critical to prepare for next year’s changes.
Evolving rules
Under current tax rules, employers may deduct expenses for meals provided to staff and exclude the value of those meals from employees’ gross incomes. An employer’s deduction for food and beverages is generally limited to 50% of the expenses paid or incurred — unless employer-provided meals can be defined as a “de minimis” fringe benefit. These are benefits so small that accounting for them would be unreasonable or impractical. If you can define your employer-provided meals as a de minimis fringe benefit, you may deduct 100% of their cost while still excluding applicable amounts from employees’ incomes.
Two recent tax laws have brought significant impending changes to these rules.
First, the Tax Cuts and Jobs Act (TCJA) of 2017 largely eliminated the employer deduction for eligible meal expenses paid or incurred after 2025. These include expenditures for food and beverages that are excludable from employees’ incomes, as well as the costs of meals that can be defined as de minimis fringe benefits.
Second, the One Big Beautiful Bill Act (OBBBA), enacted in July, upholds the TCJA’s post-2025 elimination of the deduction in question. However, it provides several exceptions, one of which is broadly applicable to most employers.
That is, starting in 2026, your organization may deduct 100% of employer-provided meal expenses so long as the meals in question are sold to employees “for full and adequate consideration.” In other words, you can’t sell food and beverages at steeply discounted prices.
There are other exceptions, but they apply to specific industries. For example, a deduction is still available for amounts paid for food and beverages provided to crew members of commercial vessels or drilling rigs, as well as for expenses arising from meals provided to crews of fishing vessels.
Communication strategy
Next year’s tax rule changes could trigger an abrupt shift in workplace culture if your organization has been providing meals to employees for a while. Going from receiving free food and beverages to having to pay for them might be a tough pill to swallow.
Of course, you could continue offering free meals, snacks or drinks and absorb the higher costs. There may be morale and productivity benefits to justify the expense. Weigh the pros and cons carefully in consultation with your leadership team and professional advisors.
If you do decide to revise your policy regarding employer-provided meals, be transparent with employees. Explain the changes in plain language, perhaps noting how the provisions of the TCJA and OBBBA have affected the feasibility of employer-provided meals for many organizations — including yours. Also, update your employee handbook and expense policy. And train supervisors to discuss the matter with their teams.
The timing of your communication strategy is crucial. For best results, roll it out well before year end so employees have plenty of time to digest the changes. In addition, be prepared to issue a reminder in January.
Altered landscape
The landscape for employer-provided meals will look much different for many organizations next year, presenting challenges to both tax planning and employee relations.
We can further explain the details as they pertain to your operations and help you identify tax strategies that benefit your organization and its staff.