The vaunted free meals offered to employees by the likes of Google, Facebook and Twitter are getting close attention from the Internal Revenue Service, which says free food is a taxable fringe benefit.
The Wall Street Journal reports that the IRS has been seeking back taxes from some employers who haven’t been withholding them on the value of the meals. Last week, the agency and the Treasury Department said taxing employer-provided meals was one of their top priorities for the fiscal year that ends in June 2015. One tax attorney told the Journal that she expects the IRS to indicate that free meals have to be regarded as income for tax purposes.
That doesn’t mean a bunch of Silicon Valley workers should expect bills for back taxes. The IRS will probably seek to get money from the employers, who would be liable for failing to withhold appropriate taxes.
For tax purposes, employer-provided meals are often treated much like personal use of a company car—as a taxable fringe benefit. However, there are exceptions to the rules, such as when meals are offered for “noncompensatory” reasons. As examples, the Journal cites meals provided on oil rigs or at casinos, where security practices make it difficult for employees to eat outside of their place of work.
Critics say the untaxed meals give some employers an unfair advantage and distort the economy. Defenders argue that the meals are part of Silicon Valley’s culture and serve real business purposes, such as encouraging collaboration and more hours at work. “Look at the time savings,” said Mary B. Hevener, an attorney at Morgan, Lewis & Bockius LLP in Washington, D.C. “If your employees are able to eat lunch and get back to their desks in 20 or 30 minutes, that’s a big time savings.”
If companies have to treat meals as taxable income, will the benefit go away? Not necessarily. At least one company in Silicon Valley already pays its employees extra to cover the cost of any additional taxes.
In any case, the issue is far from settled. Tax attorneys expect the status of the meals will get sorted out in court.
- Tech’s Unlimited Vacation Time a Scam?
- Some Companies REQUIRE Employees to Take Vacation
- Here Are the Perks Employers Offer Most