What expense category is Non-Travel Employee Meals?

Providing meals to employees in the office is a common way to foster collaboration, improve productivity during long workdays, and boost morale. Whether it's catering for a team meeting, stocking the breakroom, or hosting a company picnic, these expenses are a part of doing business.

However, the IRS has very specific rules that govern the deductibility of these non-travel meals. The tax treatment depends entirely on the purpose and context of the meal provided. This guide will clarify how to categorize these expenses according to IRS rules to ensure your business remains compliant and maximizes its deductions.

Employee Non-Travel Meals Category

The costs you incur for providing non-travel meals to employees are a Meal Expense. This is not a standalone line item but is part of the overall business meal expense calculation, which is subject to specific limitations.

On a company's books, these costs might be tracked under accounts like Employee Welfare, Office Expenses, or a specific Meals account. For tax purposes, the final deductible amount is reported on the Meals line of the business tax return.

Important Considerations When Classifying Employee Meals

The most critical factor for accountants and business owners is understanding the 50% deduction limit and the specific exceptions that apply.

The 50% Deduction Limit

As a general rule, IRS Publication 463 states that you can only deduct 50% of the cost of business-related meals. IRS Publication 535 clarifies that this limit applies to meals you furnish to your employees, including food and beverages provided at your place of business.

De Minimis (Minimal) Meals

If you occasionally provide coffee, donuts, or snacks for employees in the office, this is considered a de minimis fringe benefit. While this benefit is tax-free to the employee, Publication 535 specifies that for tax years after 2017, the employer's deduction for these food and beverage expenses is still subject to the 50% limit.

Meals for the Convenience of the Employer

You may provide meals on your business premises for your convenience, such as keeping employees working through a tight deadline. While the value of these meals can be excluded from your employees' wages, your business deduction for the cost of the meals is generally still subject to the 50% limit unless it meets one of the specific exceptions below.

Key Exceptions to the 50% Limit

Publication 463 outlines several important exceptions where the cost of employee meals is 100% deductible:

1. Recreational or Social Activities: The full cost of expenses for company-wide recreational or social activities, such as a holiday party or summer picnic, is deductible. This exception applies only if the activity is primarily for the benefit of your employees who are not highly compensated.
2. Meals Treated as Compensation: If you include the full value of a meal in an employee's wages on their Form W-2 and withhold applicable taxes, the 50% limit does not apply, and the cost is fully deductible as wages.

Tax Implications and Recordkeeping

To deduct the cost of employee meals, you must report them correctly and maintain thorough documentation.

How to Report the Deduction

For a sole proprietor filing a Schedule C (Form 1040), the total cost of non-travel employee meals is calculated, the appropriate limit (50% or 100%) is applied, and the final deductible amount is reported on Part II, Line 24b, Meals.

What Records to Keep

You must have documentary evidence to substantiate your meal expenses. This includes:

• Receipts from restaurants, caterers, or grocery stores.
• Invoices that detail the food and beverages provided.
• For a company event like a holiday party, documentation showing the date, location, and purpose of the event.
• Proof of payment, such as canceled checks or credit card statements.

How Fyle Can Automate Tracking for Employee Meals

Fyle simplifies the management of all your employee meal expenses, ensuring every purchase is captured, coded, and compliant with IRS rules.

• Capture Receipts Instantly: Employees can snap a picture of a meal receipt with the Fyle mobile app for immediate submission.
• Enforce Meal Policies: Fyle’s policy engine can automatically apply the 50% limit to meal expenses or flag them for review.
• Track by Event or Meeting: Code all catering and food costs to a specific event, like Annual Holiday Party, for clear cost tracking.
• Automate Your Accounting: Sync the final, deductible portion of meal expenses directly to the correct GL account in QuickBooks, Xero, NetSuite, or Sage Intacct.