Employee-related meals are treated differently than qualified business meals.  Employee-related meals are excluded from the gross income of the employee as a fringe benefit and fully deductible by the employer provided that it is furnished (1) on the employer's business premises and (2) for the convenience of the employer.

Whether meals are furnished for the convenience of the employer is a question of fact to be determined by analyzing all the facts and circumstances.  In general, if the employer furnishes the meals primarily to enable the employee to perform his or her duties properly, it is excluded from gross income.

A special exception is provided where more than half of the employees of the business receive meals that qualify as for the convenience of the employer and are excluded from gross income.  A bank teller who works from 9 to 5 is furnished with free lunches in a cafeteria on the banking premises.  The bank furnishes its tellers with the free lunches to limit their lunch period to 30 minutes during the noon hour peak.  It would take considerably more than thirty minutes for lunch outside.  The bank strictly enforces the thirty minute lunch limit.  The teller's free lunches in the bank cafeteria are exempt.

The second category of meals is the qualified business meal, which is deductible by the employer as a business expense, but is limited to 50% of the cost of the meal.  In order for such a business meal to be deductible by a taxpayer it must generally satisfy the following three conditions:

1. The meal is "directly related to" or "associated with" the active conduct of the business
2. The meal expense is not considered lavish or extravagant
3. The taxpayer or an employee must be present at the meal.

It should be noted that these stringent rules do not apply to meal expenses incurred by the taxpayer when he or she is traveling away from home on business.  In that instance, all meal expenses are deductible, subject to the percentage limitation.

Exceptions are also provided for the 50% limitation.  For example, one is not subject to the 50% limit if one provides meals to the general public as a means of advertising or promoting goodwill. Similarly, expenses for meals for recreational or social activities for the benefit of the employees, such as a summer company picnics, are not subject to the 50% limitation.  

Experienced employees of FB&C write the contents of the materials posted on the blogs.  Carefully consider all facts and circumstances specific to your situation before applying information in our blogs and consult your FB&C advisor before acting on any information provided. The information is provided as general guidance and is not intended to constitute accounting, tax, legal or other professional advice.