Every year, the IRS publishes a guidance plan, which takes a look at the items that the IRS plans to scrutinize in the coming months. On the list for the upcoming year is one of the perks offered by some employers: free lunch.
There are a number of employers that are trying to offer perks that make staying at work for long hours more bearable. This includes free lunch at a workplace cafeteria, as well as an on-site gym, and/or an on-site daycare/preschool. When it comes to free lunch, the IRS has stated its intention to look at whether this perk ought to be taxed.
How Free Lunch Works Now
Technically speaking, something like free lunch should be considered employee compensation. The value of the food should be considered in terms of payroll tax, and employees should pay income tax — except that right now companies get around it by claiming that it’s something done for the employer’s convenience.
Right now, the IRS allows a pass to companies that offer meals to employees when they have to work long hours, or if it’s difficult to get to a restaurant and back during lunch hour. These difficulties make it in the best interest of the company to offer free meals to employees, and it’s considered employer convenience, so it’s not really taxable.
On top of that, small things, like free coffee, donuts, and other small snacks aren’t even considered to be in the realm of taxable because of their nature.
Could the IRS Move to Tax Lunches in the Future?
With meals becoming increasingly prevalent, especially at tech startups and companies in Silicon Valley, the IRS could possibly decide to issue new guidance on the issue. The IRS wants to look at these meals, and figure out if they are really offered as part of employer convenience, or whether they are actually perks that amount to extra income for employees.
Going into the equation might be how busy a company is during the accepted lunch hour, as well as how often meals are offered, and whether or not all employees have to take them, or whether or not it’s option for employees. Of course, the other side of it is that the IRS might not even get to the question this time around, since there are a lot of issues the IRS wants to investigate, and the agency is notoriously underfunded.
But it’s worth noting this shift in IRS attention, and the potential scrutiny that free meals could be under soon. Also, it’s important to recognize that employer perks don’t end at lunch. Some employers offer special rates for gym memberships, or they offer on-site childcare. It’s also a possibility that perks like tablets that workers can keep and use at home, or similar perks, might be under scrutiny as well. All of those cool perks that you love from your job might be subject to new IRS guidance in the future, and that could easily impact your bottom line in the future.