Subscribe for the best articles

Bon Voyage to Bon Appetit: IRS Plans to Tax Free Employee Lunches

Posted by Ryan Mason to Business Advice

blueberriesbw_copy

From Google’s gourmet cafeterias to trays of cold cuts in tiny startups, Silicon Valley companies have been feeding their employees free lunches for years now. It’s a big part of the reason why tech companies like Google have the fun-loving and employee-centered reputation they currently enjoy. However, the IRS has been watching from afar, hungrily waiting for the opportunity to tax these lunches, and they've finally found it.

The IRS is now calling these free lunches a “taxable fringe benefit,” which means that employers now face extra fees for providing free lunches to their employees. This is no small sum, either. Let’s say an employee eats one free meal a day: if a single lunch has a market value of, say, $10, a company may end up paying taxes on an additional $2600 per employee annually. Although big companies like Google and Facebook can easily absorb this additional tax burden, smaller startups may be forced to give up their free lunches--which may spell the end of a Silicon Valley tradition.

The IRS’ Side of the Story

Other than the obvious purpose of revenue-generation, the IRS sees these free lunches as an unfair advantage for companies that are able to afford them. It’s true that perks like these are a secret weapon for many recruiters, and part of the reason the IRS considers free lunches taxable in the first place is because free lunches can be considered part of a broader compensation package. Of course, like it is with any compensation package, the more a company offers, the more there is that can be taxed. Additionally, the government currently misses out on the tax that they would’ve collected from the employee buying their own lunch-- of course, this ignores the obvious fact that the company providing the free lunch naturally paid sales tax when they bought the food in the first place. Tax would have been paid either way.

The Argument for Free Lunches

If this issue was put to a vote, we’re betting that employees and employers alike would vote for free lunches to stay in the workplace! Besides, if this practice is allowed, what’s stopping the IRS from deciding to tax employers for providing coffee, breath mints, or toilet paper for that matter?

One of the reasons Silicon Valley became the in-demand hotbed of innovation in the tech world is because of trendsetting practices like the free employee lunch. Although it may seem like an unnecessary perk, things like free meals have actually been proven to boost productivity and improve employee morale, so this change to the tax code may end up hurting employees and companies alike in more ways than one. The IRS should not hinder innovation for some extra pocket change and it certainly should not obsess over new ways to tax law-abiding companies for caring about their employees. This decision makes it seem like the IRS prefers the idea of American workers simply existing as a cog in a soulless company that doesn’t care about their well-being at all, much less their empty tummies.

InDinero Can Help

No matter how you feel about the issue, inDinero is able to help your company transition to a world with taxable employee lunches. InDinero makes determining your company's tax responsibility for fringe benefits like lunches easy because our software helps you keep your business transactions organized and easy to analyze. In addition, inDinero’s analytics dashboard is designed to help you keep a close eye on how much your company is spending and whether or not it’s sustainable. No matter what changes the IRS makes to the tax code, our flexible and continuously evolving product is here to help.

accounting terms

About the author
“Ryan

Ryan Mason

Ryan Mason is a content creator, former teacher, and martial arts movie collector from Concord, California. He currently lives in Portland, Oregon and loves coming to work at inDinero every day.


Disclaimer: The inDinero blog provides general information about tax, accounting, and business-related topics. It is not intended to provide professional advice. Read more in our Terms of Use.