Dishing on Employee Meals: Tax Reform and Meals and Entertainment Expenses

Over the years, the idea of only larger companies providing employee meals has drastically changed. Employers providing meals to employees has become somewhat common for many midsize to large companies. However, a recent tax law change may render the practice extinct.

In late December 2017, the Tax Cuts and Jobs Act passed and will ultimately phase in a significant amount of both positive and negative changes to the way businesses calculate their tax liabilities. Revisions to the regulations and guidelines of employee meals and entertainment expenses are no exception.

Before the Tax Cuts and Jobs Act, taxpayers generally could deduct 50% of expenses for business-related meals and entertainment. But meals provided to an employee for the convenience of the employer on the employer’s business premises were 100% deductible by the employer and tax-free to the recipient employee. Various other employer-provided fringe benefits were also deductible by the employer and tax-free to the recipient employee.

Under the new law, for amounts paid or incurred after December 31, 2017, deductions for business-related entertainment expenses are disallowed. Meal expenses incurred while traveling on business are still 50% deductible, but the 50% disallowance rule now also applies to meals provided via an on-premises cafeteria or otherwise on the employer’s premises for the convenience of the employer. After 2025, the cost of meals provided through an on-premises cafeteria or otherwise on the employer’s premises will be completely nondeductible.

Hungry for more? To assess your business’ tax needs or if your business regularly provides meals to employees, let us assist you in planning for this tax reform impact.

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Thomas Jones is the lead tax partner at McConnell & Jones. With more than 40 years of experience in investment and financial management, Mr. Jones is responsible for providing a complete range of financial services that promote long-term business success to entrepreneurs and small business owners such as tax planning and small business structuring.