Provide Employee Meals as Tax-Free Fringe Benefits - Palma Financial

Many employers find it hard to hire and keep employees during the COVID-19 pandemic and the resulting “great resignation.” Employers who offer tax-free fringe benefits can keep good employees. The benefits are deductible for the employer but tax-free for the employee.

Tax Treatment of Employer-Provided Meals: What’s New?

Common examples of tax-free benefits are health insurance and paid vacation.

But there is another potential employee fringe benefit: free meals (usually, lunch). Free meals not only make your employees happy but keep them on the premises and generally make them more productive.

The deduction for free meals ends in 2026, so now is the time if you want to give this perk to your employees.

However, not all employee meals are a tax-free fringe benefit. To be a tax-free meal,

  • must be given in-kind (no cash alternative for not taking the meal),
  • on the employer’s business premises, and
  • for the convenience of the employer.

The most common way to pass the convenience test is to establish that employees can’t get their meals within a reasonable time; it means that they would have to go out of their way or wait too long for a meal.

However, nowadays, many people use meal delivery services like Grubhub, DoorDash, and Uber Eats, so it’s harder for employers to claim that their employees can’t get a meal within a reasonable time.

If an employer wants to provide tax-free meals under the “not enough time” test, they should not allow their employees to use meal delivery services. They should document why meal delivery services are not viable for them—for example, due to disruption or security concerns.

Want to learn more about tax-free fringe benefits? Book Your Free Assessment Here.