21 July 2019

Employer-Provided Meals

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Staffers at technology companies such as Google Inc, Facebook Inc. and Twitter Inc. long have enjoyed free gourmet meals, courtesy of their employers. The groaning buffets, in-house pizza joints, and kitchens stocked with organic produce are an intrinsic part of the culture in much of Silicon Valley, encouraging both collaboration and longer work hours.

The IRS, arguing that these freebies are a taxable fringe benefit, has given new attention to the issue in recent months during routine audits of some companies. When employers haven't been withholding taxes related to the meals, the IRS increasingly has sought back taxes that can amount to 30% of the meals' fair-market value.

In another sign of a new focus on the issue, the IRS and U.S. Treasury Department last week included taxation of "employer-provided meals" in their annual list of top tax priorities for the fiscal year ending next June. The agencies said they intend to issue new "guidance" on the matter, but gave no specifics about timing or what the guidance would say.

Tax lawyers expect some employers will fight the IRS over the matter, and said the issue is likely to be decided in the courts. Any broad IRS crackdown could spur complaints about petty government interference with the culture of a crucial industry.

Critics say allowing free meals to go untaxed distorts the economy and gives some employers an unfair edge. In theory, individual employees could be dunned for back taxes on the free meals. In practice, the IRS generally tries to collect from employers, who are liable for failing to withhold taxes on any taxable income.

IRS interest in the free-meals issue ticked up last year, after The Wall Street Journal published an article focusing on whether the food should be considered a taxable benefit. In general, employer-provided meals—beyond those served at the occasional business meeting—are a taxable fringe benefit, similar to personal use of a company car or the value of employer-paid life-insurance coverage above the IRS threshold of $50,000.

But it is a complex area of tax law, and there are exceptions. The exception generally applies to workers in remote locations, such as oil rigs, or in professions where reasonable lunch breaks aren't feasible.

Even if tax-free meals eventually go away, that won't necessarily spell the demise of Silicon Valley's no-cost buffets. Marianna Dyson, an attorney at Miller & Chevalier in Washington, said she knows of at least one Silicon Valley company that provides free food, but "grosses up" its employees, paying them extra to cover additional taxes owed on the perk.

Click here to access the full article on The Wall Street Journal. 

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