That Food Benefit May Become Taxable Income


Beer at work as taxable income?
Beer at work as taxable income?

One of the benefits often mentioned for companies considered “great places to work” is the free food and drinks made available to the employees. This even gets used as a recruitment incentive to convince an employee they want to work for you. Well I have some potentially bad news for you, that free food may soon be a taxable benefit.
Income tax on your sandwich
My friend Jon Hyman has reported that the free meals companies provide to their employees should actually be taxed if the meal is not provided for the convenience of the employer. The IRS does allow tax free meals in situations where the meal is provided on the company premise and is done for the benefit of the company and not the employee. Otherwise the value of that meal should be added to the taxable income of the employee. According to Martin J. McMahon, Jr., professor of tax law at the University of Florida a company cannot provide tax-free meals if workers commute from home and have the ability to bring their lunches with them.
No free beer
I have friends that work at two companies that are considered progressive places and both companies offer free beer and wine to employees. A nice benefit! But according to Professor McMahon the company should be reporting the value of that beer to the IRS as taxable income.
Of course the IRS sees this as a potential boon so they are looking at this closely. If it comes to pass it will certainly put a damper on the offers of employment made by those companies who offer food and drink benefits. I can see that offer letter now “Your salary will be $50,000 annually plus, based on our review of your Facebook page, we will estimate another $3000 annually for the beer you drink.”

2 thoughts on “That Food Benefit May Become Taxable Income”

  1. With everything the IRS has on their plate (the ongoing scandal involving improper targeting of conservative groups), I would think going after employee lunches rather low on the priority list. Also, IMO, Martin J. McMahon, Jr. should be applying himself to more pressing issues. Perhaps he could apply himself to figuring out the actual costs employers are going to face under the new health care law??

    • There is indeed a need to understand the costs associated with the ACA and indeed there are numerous organizations that are making that kind of assessments, from the government itself to conservative think-tanks. Mr. McMahon is looking at something that in reality could have a significant effect on many companies. The “benefit” packages that many companies offer often figure highly into the decisions candidates make. Those benefits are often what helps get a company labeled as a “best place to work”. Removing those, or taxing those, benefits may have an impact on a company’s ability to attract a talented individual in a competitive market.
      Now as to the issue of whether the IRS has other things on their plate… well it is a vast organization. Besides it doesn’t take much effort to change a rule and start collecting money.

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