Under the TCJA, are Employee Shift Meals Still 100% Deductible?
posted Apr 23, 2019 by Laura H. Yalanis, CPA, MST in the Restaurateur Blog
Attention restaurants…do you provide discount meals to your employees before, during or after their shifts? Thanks to December 2017’s Tax Cuts and Jobs Act (TCJA), employers are faced with new limits regarding deductions for meals and entertainment costs. This has many restaurant owners wondering, are shift meals still 100% deductible?
Before the TCJA
Under prior law, employers could deduct 100% of shift meals supplied to employees, provided that the food and/or beverages were tax free to employees (qualified de minimis fringe benefits).
The TCJA change has left many restaurant employers confused. When the TCJA was enacted, it was generally agreed that the new 50% disallowance applies to the cost of meals provided by a non-restaurant taxpayer that has an employee cafeteria on its premises. However, the law doesn’t explicitly state that the 50% disallowance also applies to shift meals provided by a restaurant (either free of charge or at a discount).
Joint Committee on Taxation Clarifies
At the end of 2018, the Joint Committee on Taxation released what it calls its “Blue Book,” which provides explanations of enacted tax legislation.
In regard to the shift meal deduction debate, the Blue Book confirms that employee shift meals are not subject to the 50% disallowance, but rather remain 100% deductible.
Shift meals, according to the Blue Book, fall within an exception to the 50% meal deduction disallowance. Under Internal Revenue Code 274(e)(8), expenses for goods or services which are sold by the taxpayer to the general public are 100% deductible. The Blue Book points to the legislative history of the Tax Reform Act of 1986, providing that a restaurant or catering firm may deduct 100% of its costs for food and beverage items, purchased in connection with preparing or providing meals to its paying customers, that are consumed at the worksite by the employees of the restaurant or caterer.
Wondering how other M&E provisions have changed under the TCJA? Check out our blog, Should You Rethink Your Marketing Plan Under the New Tax Law?
Questions? Reach out to any member of our Hospitality Services Team.