Meals Provided for the “Convenience of the Employer”
Internal Revenue Code (IRC) §119 provides an exclusion from income for the value of meals provided by the employer under certain circumstances. Cash, or a cash equivalent, provided for the purchase of meals is not excludable under this Code section. In addition, if an employee has an option to receive additional wages in place of actual meals, then the meals are taxable.
Federal law takes precedence over a state statute, or an employment or union contract, in determining the Federal tax liability for furnished meals. The actual facts and circumstances and the requirements of IRC §119 determine the liability for Federal income taxes, as well as social security (if covered employment), and Medicare taxes.
Employer-provided meals are excludable from the wages of the employee if they are provided:
- On the employer’s business premises; and
- For the employer’s convenience.
For meals to be excludable, both the “business premises” and “convenience of employer” tests must be met.
“On the employer’s business premises” means the meals must be provided either at:
- A place where the employee performs a significant portion of his or her duties; or
- The premises where the employer conducts a significant portion of its business.
Example: Meals are provided at no cost to employees on a state ferry. The employee performs a significant portion of duties on the ferry; therefore the ferry qualifies as the employer’s premises. If the meals are furnished for the convenience of the employer (for example, because the employer cannot stop the ferry to allow the employees to go to lunch) the meals are not taxable.
Convenience of the Employer
Meals are provided for the convenience of the employer if they are provided for a substantial noncompensatory (not intended as compensation) business reason. Whether or not a meal is provided for the convenience of the employer depends on the facts and circumstances of the case.
Meals are regarded as furnished for substantial noncompensatory business reasons in situations such as:
- Where meals are furnished during working hours so that the employee is available for emergency calls during the meal (as long as there is evidence to show that emergencies occur);
- When the nature of the business (not merely a preference) requires short meal periods and employees could not be expected to obtain meals elsewhere in such a short period;
- Where employees cannot otherwise obtain a meal within a reasonable meal period, such as when there are insufficient eating facilities available in the surrounding area of the business premises; and
- When meals are furnished to restaurant employees, before, during or after work hours.
Meals provided to improve general morale or goodwill, or to attract prospective employees, are not provided for a substantial noncompensatory business reason and are taxable.
Meals provided before or after working hours are not for the convenience of employer, unless:
- They are provided for a restaurant or cafeteria employee; or
- Duties prevent the employee from taking a meal until immediately after working hours.
If meals are furnished for the convenience of the employer to more than half of the employees on the business premises, then all the meals served on the business premises will be considered furnished for the convenience of the employer.
Examples of meals furnished for the convenience of the employer include:
- Meals furnished to firefighters on duty at the firehouse
- Meals furnished to employees at a remote logging camp with no other eating facilities in the area
- Meals furnished to bank employees by a bank that experiences its highest customer demand during the lunch hour and establishes a short meal period so that employees are available to meet this demand
Meals While Traveling
In order for meals reimbursed as a travel expense to be excludable from wages, employees must be traveling away from their tax home on their employer’s business. As with other travel-related expenses, the general area of work, not the employees’ residence, determines the tax home. Reimbursements or allowances must meet the accountable plan rules in order to be excludable.
Traveling “away from home” means:
- The employee must be traveling away from the general area of the tax home substantially longer than an ordinary day’s work, and
- The employee needs to obtain substantial sleep or rest to meet the demands of the work while away from home.
Example: An employee is required to travel out of town to work for the day. The employer agrees to pay for the employee’s meals while away. The employee leaves home at 7:00 a.m. and returns home at 9:00 p.m. Before the employee returns in the evening, the employee takes a nap in his car for an hour. Although the employee is away from his tax home for substantially longer than a normal work day and even stops for rest, the rest is not considered to be substantial. The employee is not traveling away from home and any meal money that the employee receives is taxable as wages.
Meals reimbursed as a travel expense are discussed in detail in the Publication 5137, FSLG Fringe Benefit Guide, and in Publication 463, Travel, Entertainment, Gift, and Car Expenses.