The high cost of subsidized eating facilities and employees eating in.

• Author: Ely, Mark H.

Every employer's dream is a diligent worker munching on a sandwich at his or her desk during lunch hour. Because the cost of a meal is "small potatoes" when compared to the value of a highly productive employee, employers regularly pick up lunch and dinner tabs, often assuming that this expense is not required to be included in an employee's gross income. Although they are often correct in their assumption, they do not realize that employer-provided meals must meet objective tests under the Code to be excluded. Employers might face significant exposure to additional employment taxes if they do not meet the tests.

Exclusion Tests

Sec. 119(a) is the primary authority on meals or lodging provided for an employer's convenience. Under that provision, meals furnished to an employee (or the employee's spouse or dependents) would be excluded from his or her gross income if the employer provides the meals (1) on its business premises and (2) for its convenience.

Whether meals are "convenient" is an objective determination based on the facts and circumstances. Generally, it means that employers provide meals for a substantial noncompensatory business reason, rather than as additional employee compensation.

Although Regs. Sec. 1.119-1(e) indicates that cash allowances or reimbursements for meals do not qualify for exclusion, Regs. Sec. 1.132-6(d)(2)(i)(C) provides that meal money paid on an occasional basis to an employee working overtime, is an excludible de minimis fringe benefit.

Under Regs. Sec. 1.119-1(a)(2)(ii)(a)-(f), meals are provided for a substantial noncompensatory business reason when furnished:

1. To allow an employee to be on emergency call during meal periods;

2. Because an employer's business restricts an employee to a short meal period (e.g., 30-45 minutes), and it is impossible for the employee to eat elsewhere in such a short time;

3. Because an employee cannot secure meals within a reasonable period (e.g., the vicinity has no sufficient eating facilities);

4. To a restaurant or food-service employee, irrespective of whether the employer furnishes meals during, or immediately before or after, working hours;

5. At a place of business, and the reason for furnishing meals to substantially all of the employees who are furnished the meals is a substantial noncompensatory business reason (the meals then furnished to each of the other employees will be regarded as a substantial noncompensatory business reason); and

   6 Immediately after working...