Meals that are excluded from an employee's income under Internal Revenue Code Sec. 119 (which deals with meals provided on the employer's premises for the convenience of the employer) are considered a de minimis fringe benefit under Internal Revenue Code Sec. 132. As a result, meals provided at an eating facility for employees are fully deductible by the employer (instead of possibly being subject to the 50-percent limit on the deductibility of business meal expenses under Internal Revenue Code Sec. 274). For this purpose, the employee is treated as having paid an amount for the meal equal to the direct operating costs of the facility attributable to the meal.
Generally, the value of meals provided to employees at an employer-operated eating facility is excludable from gross income as a de minimis fringe benefit only if:
- on an annual basis, the revenue from the facility equals or exceeds the direct operating costs of the facility; and
- with respect to any officer, owner or highly compensated employee, access to the facility is available on substantially the same terms as other employees.
To qualify as an employer-operated eating facility so as to exclude the value of meals provided to employees as a de minimis fringe benefit, all of the following conditions must be met:
1. the facility must be owned or leased by the employer;
2. the facility must be operated by the employer, either directly or under contract with another;
3. the facility must be located on or near the business premises of the employer; and
4. the meals furnished at the facility must be provided during, or immediately before or after, the employees' workdays.
For the purposes of determining the qualification of an eating facility, each dining room or cafeteria is treated as a separate facility, even if they share a common kitchen.
Source: Reg. §1.132-7(a)(2); Reg. §1.132-7(a)(1)(i); and Reg. §1.132-7(a)(3).