January 7, 2019
In general, meals provided to employees are considered to be income to the employee and must be reported on their W-2. The exception to this is if the meal is provided for the employer's convenience. But what does this actually mean? The IRS recently issued guidance on when these meals are or are not considered income. Like most things related to the IRS, facts and circumstances of each individual case need to considered. However, there are some general guidelines which are summarized below.
First and foremost, the meal must be provided on the premises of the business.
Second, there must be a “substantial noncompensatory business reason” for providing the meal. In layman’s terms, this means that the company must have a stated goal that the meal policy relates to. Reasons could include (but are not limited to) needing the employee to take a short lunch break due to peak business hours, wanting to promote a collaborative work environment, or a desire to have a healthier workforce.
The IRS has the right to ask for proof that the policy is enforced and that all employees are aware of it. As such it is best (but not necessary) to have a written policy, such as a company handbook, that clearly states the meal policy and the goal it relates to. The burden for this proof falls on the employer, so like other HR related issues make sure to get documentation. This could include proof the policy was given to the employee or timecards showing employees actually do take short lunches due to peak business hours.
In short, providing meals to your employees can be for your benefit, but make sure to have documentation to support your policy in case the IRS decides to question your reasoning.
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