By now, most of us who deal with income taxes have probably heard that the One Big Beautiful Bill Act (OBBBA) made employer-provided lunches, dinners, snacks, and even coffee and water non-deductible for federal income tax purposes. While blanket statements to that effect may contain some truth, the actual rules are much more nuanced.
Why Employer-Provided Meal Costs Changed: TCJA and OBBBA
It is not the OBBBA but the Tax Cuts and Jobs Act (TCJA) that has the most effect on employer-provided meal costs. Passed in 2017, the TCJA created section 274(o), which sat dormant for eight years and became effective for tax years beginning after Dec. 31, 2025.
As originally enacted, section 274(o) denies an employer any tax deduction, not just 50% of one, for:
- Any expense of operating an eating facility for employees on or near the business premises of the employer, including any expense for food and beverages which are associated with such an eating facility for employees, or
- Any deduction for meals which are furnished on the business premises of the employer and which are provided for the convenience of the employer.
The OBBBA amended section 274(o) to provide exceptions for:
- Expenses for goods or services (including the use of facilities) which are sold by the taxpayer in a bona fide transaction for an adequate and full consideration in money or money’s worth.
- Food and beverages provided to crews of certain commercial fishing vessels, and for petroleum drilling platforms and similar facilities.
The OBBBA’s amendment to section 274(o) makes the employer’s expenditures 100% deductible for those items it sells for full and adequate consideration or provides to fishing boats and certain petroleum workers. Here is what section 274(o) does and does not do.
First, expenses of operating “an eating facility for employees” on or near the business premises of the employer are no longer deductible, nor are expenses for “food and beverages associated with such eating facilities.”
What is an “eating facility for employees?”
Regulation section 1.132-7(a)(2) defines it as “a facility” that meets the following requirements:
- It is owned or leased by the employer
- It is operated by the employer
- It is located on or near the business premises of the employer, and
- The meals furnished at the facility are provided during, or immediately before or after the employee’s workday
Note that neither the statute nor the regulations define the word “facility.” The regulations use words such as “dining rooms or cafeterias” to describe them. They also contemplate that an eating facility is a location at which individuals (cooks and waitstaff) are employed to prepare or serve food (Reg. section 1.132-7(b)(ii)). Therefore, “an eating facility for employees” means a cafeteria or dining room where meals are prepared on site and served by cooks and waitstaff.
Based on the foregoing, it seems clear that employers may not deduct the costs of operating an on-site cafeteria or dining room for their employees’ use, nor may they deduct the cost of food and beverages served to employees in such a facility unless the employee pays full and adequate consideration for the meal.
IRS View on Meals vs. Snacks
Absent the presence of and connection to a “eating facility for employees,” however, 50% of the cost of providing food and beverages to employees may still be deductible as a de minimis fringe benefit under section 132(e)(1), but we must look further into the second element of section 274(o).
That second element also denies deductions for “meals” which are furnished on the business premises of the employer and which are provided for the convenience of the employer. Here, the statute uses the word “meals” and not “food and beverages,” so food and beverages that are not also “meals” fall outside of section 274(o) if not provided in connection with an eating facility for employees.
What is a “meal?” Are employer-provided bananas or donuts set out next to the office coffee maker in the morning “meals?” What about small bags of pretzels and potato chips, candies, cookies, apples, oranges, or other “snack foods” made available in the employee break room? Is the cost of coffee, water, and other beverages provided to employees without charge now non-deductible because they are “meals?”
In Tougher v. Commr., 51 T.C. 737 (1969), aff”d 441 F.2d 1148 (9th Cir. 1971), cert. denied, 404 U.S. 856 (1971)), the U.S. Tax Court ruled that “The word ‘meals’ connotes to us food that is prepared for consumption at such recognized occasions as breakfast, lunch, dinner, or supper, or the equivalent thereof.”
Based on the Tax Court’s decision in Tougher, a “meal” means something more than snacks and beverages. A “meal” involves some form of preparation (mixing, cooking, heating, chilling, etc.) which constitutes a breakfast, lunch, or dinner. In TAM 201903017, the IRS ruled that “snacks that [the] Taxpayer provides its employees in designated snack areas are not meals prepared for consumption at a mealtime and therefore do not qualify as meals provided for the convenience of the employer ….”
Based on the foregoing, employer-provided, on-premises coffee, water, soft drinks, and snacks, which do not rise to the level of “meals,” remain fully deductible by employers as long as they are not associated with an eating facility for employees (a dining room or cafeteria with cooks and wait staff).
Accordingly, deductibility of food and beverages provided to employees on the business premises of an employer comes down to:
- Are the food and beverages associated with an “eating facility for employees?”
- Do the food and beverages constitute a “meal?”
If the answer to either question is “yes,” the employer may not deduct the cost of such items provided to employees without adequate compensation being paid for them.
The following chart sets forth the deductibility of most meal and entertainment expenses after 2025. These descriptions presume that the cost or value of meals and entertainment expenses is not included in the taxable compensation of the employee or other recipient or are paid for by the employee or other recipient.
Deductibility of Employer-Provided Meal Costs After 2025
| Meals (prepared breakfast, lunch, or dinner) provided on the employer’s business premises | Non-deductible. | Section 274(o) disallows any deduction for meals served on the business premises of the employer for the employer’s convenience. |
| Food and beverages not constituting meals served in employee break rooms and similar areas, which are not cafeterias or dining rooms with cooks and waitstaff | 50% Deductible | These items are not “meals” so fall outside of section 274(o) if not associated with a cafeteria or dining room with cooks & waitstaff. |
| Food (including snacks) and beverages provided in cafeterias and dining rooms where cooks and waitstaff are employed | Non-deductible | Section 274(o) disallows deductions for operating employee dining facilities and the cost of food and beverages associated with them. |
| Meals occasionally provided to employees who work overtime and which are served off the employer’s business premises, such as at a nearby restaurant. | 50% Deductible | Section 274(n). Such meals do not fall under section 274(o) because they are not provided on the business premises of the employer. Instead, they constitute a de minimis fringe benefit under section 132(a)(4) if they are provided on an occasional basis and their value is so small as to make accounting for them unreasonable or administratively impracticable. |
| Expenses for recreational, social, or similar activities for employees. | 100% Deductible | Section 274(e)(4). Fully deductible as long as the activity is primarily for the benefit of employees other than highly compensated employees. |
| Meals provided to employees during away-from-home business-related travel | 50% Deductible | section 274(n) |
| Business meals with clients, prospective clients, consultants, and similar business contacts | 50% deductible | Section 274(n), provided not lavish, ns taxpayer or its employee is present |
| Meals for transportation workers who are subject to U.S. Dept. of Labor hours-of-service rules | 80% deductible | Section 274(n)(3) |
| On-shift meals for restaurant and food service staff | 100% deductible | Section 274(e)(8) and Reg. section 1.274-12(c)(2)(v)(A) |
| Entertainment | Non-deductible | Section 274(a)(1)(A) |
| Meals served in conjunction with entertainment with clients or prospective clients | 50% if separately billed, otherwise not deductible | Section 274(n) limits deduction to 50% for separately billed meals. If not separately billed and entertainment is provided, section 274(a)(1)(A) prohibits any deduction. |
| Restaurant gift cards | Limited to $25 | Section 274(b)(1) limits deductions for business-related gifts to $25. |
Should you have any questions about the deductibility of meals, entertainment, and related costs, please contact your CBIZ tax professional.
Frequently Asked Questions
No. On-site employee meals and cafeteria costs are generally non-deductible, but some snacks and business meals may be partially deductible.
Meals provided in an on-site eating facility are typically non-deductible, while snacks not tied to such facilities may be partially deductible under IRS rules.
Yes, breakroom snacks not linked to an on-site eating facility are often partially deductible, subject to specific limits.
Business and travel meals are usually limited in deductibility, with only a portion of costs allowed under tax regulations.
No, entertainment expenses are not deductible, even if food is provided during an entertainment activity.
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