The Tax Cuts and Jobs Act (TCJA) made significant changes to a company’s ability to deduct meal and entertainment expenses. Prior to the TCJA, meals provided by an employer to employees on the business premises, when the employer needed employees to remain on-site, were 100% deductible. Effective under the new tax law, such meals are now only 50% deductible, until January 1, 2026, when an employer’s ability to deduct these meals will be completely eliminated.
Examples of businesses that qualify for the 50% deduction include: companies that give employees very short meal breaks, such that the employee could not reasonably be expected to eat off-site; companies where peak workload happens during normal meal hours; and companies who require employees to remain on-site for emergency calls. Office holiday parties and an annual outing remain 100% deductible under the TCJA.
Perhaps Marie Antoinette was onto something with her famous line: “Let them eat cake.” Interestingly, office-provided snacks are still 100% deductible under the new tax law. Litigation is bound to arise, in order to determine what can be classified as a snack, as affected employers look for ways around this deduction that has been halved, and will soon be cut off — much like Marie Antoinette’s head.
For questions about how the new tax law has affected fringe benefits, please contact Laurence C. Rubin, CPA, Aronson’s tax controversy lead partner, at 301.222.8212.