Deducting Meal Costs
It’s been nearly three years since the Tax Cuts and Jobs Act (TCJA) was enacted, but confusion persists on how the act changed, if at all, the deductibility of meals, food or beverages. Many questions were raised regarding what is still deductible, what is no longer deductible, what is deductible at 100% and what is deductible at 50%.
Business meals continue to be 50% deductible. These are ordinary and necessary food and beverage costs that are not lavish or extravagant. No deduction is allowed if the taxpayer or employee is not present.
Until 2026, the 50% limitation on food and beverage costs provided to employees for the convenience of the employer through an existing facility meets the requirements.
Any expenses treated as employee compensation, such as cafeteria charges or moving expenses, are 100% deductible to the employer. Similarly, reimbursed expenses of employees, with clear substantiation, are 100% deductible, as are reimbursements to qualified independent contractors. In the latter case, the contractor would count the reimbursement as income, and then claim qualified meal expenses as a deduction, subject to the 50% expense reduction.
Reimbursing employees for substantiated meal expenses is limited to 50% if paid under an accountable plan. If reimbursed under a nonaccountable plan, the reimbursement is included in the employee’s wages and, in effect, 100% deductible.
For independent contractors who separately state or adequately account for meal expenses, the payer is subject to the 50% limitation. Conversely, if the independent contractor does not account for the meals separately, the payer deducts the reimbursement as nonemployee compensation, which, in effect, means the meals are 100% deductible. In such a case, the independent contractor is subject to the 50% limitation.
Employee social or recreational expenses, such as company picnics or holiday parties, are still 100% deductible, provided they do not favor highly compensated employees or only involve highly compensated employees.
Items available to the public are 100% deductible, provided the public consumes more than 50% of the items. If the public consumes less than 50%, the amount allocable to the public is a deduction at 100% and the balance, consumed internally, is deductible at 50%.
