What are the tax consequences of offering meals to your employees that are required to work overtime for your business? As a general rule, the value of meals that you provide an employee in addition to his or her salary must be included in the employee’s gross income for tax purposes. There are, however, two large exceptions to this rule.
The first of these exceptions applies when meals or meal money is provided to employees:
- On an occasional basis;
- When it is needed because the employee is working overtime, and
- When the provision of the meal enables the employee to work overtime.
Meals or meal money that meet these rules are considered to be a de minimis fringe benefit, the value of which is not included in the employee’s gross income. A de minimis fringe benefit is any property or service for which the value is so small that accounting for it is unreasonable or administratively impractical.
Given the reality that many employees are required to work overtime more often than occasionally, there is another rule that permits the exclusion of the value of employer-provided meals. Under this second rule, the value of employer-provided meals can be excluded from an employee’s gross income if the meal is furnished:
- for the convenience of the employer, and
- on the business premises of the employer.
Whether a meal is provided for an employer’s convenience can only be decided on a case-by-case factual basis. Another important part of this second rule is that the meals provided for the convenience of the employer are generally only excluded from an employee’s gross income if they are provided “in kind” and not in cash. This means that you would have to provide the employees the actual meal rather than cash to purchase a meal.
Since the rules can get rather complicated, please contact Henssler Financial’s Tax & Accounting Division at 770-429-9166 or [email protected]. Our experts can help you navigate your way through these rules and come up with a workable solution for you and your employees.