Why Some Companies Have Stopped Offering Tax-Free Food to Remote Workers
Covid-19 has changed many things about corporate America, though one thing that some employees may not have expected was the end to some company-provided lunches and dinners, at least for their remote workers. Many major tech companies like Google, Twitter, and Facebook have boasted about providing free meals to their employees—all tax-free. Many news media outlets reported on this trend, noting that the Internal Revenue Service was clamoring to stop the onslaught of tax breaks.1 Nearly ten years later, the IRS made official their determination that these tax-free meals were completely legal as fringe benefits for the employee2 and as deductible expenses for the employer.3 Because the free meals provide benefits in both directions, why would an employer like Google scale back and tell its remote employees that they cannot expense meals while working remotely?4
Internal Revenue Code Section 119
The general rule is that an individual must pay taxes on all income from whatever source derived.5 This would include gifts, bonuses, and benefits received from an employer. However, the Internal Revenue Code (IRC) exempts some kinds of benefits, called fringe benefits, even if they happen to be provided by an employer to an employee.
Under § 119, benefits for meals and lodging may be excluded as income to the employee under certain circumstances. Take the case of Adams v. United States,6 in which a Japan-based company included as a condition of employment that its Chief Executive Officer, Feneuil Adams, would live in company-provided housing. Mr. Adams had lived in this housing for over 15 years when he was handed a deficiency notice from the IRS stating that he owed taxes for the economic gain he derived from his employer-provided housing. The Court overturned the deficiency because of three reasons: (1) the living arrangement was a condition of employment; (2) the housing was provided for the employer’s convenience; and (3) the housing was on the employer’s business premises. With regard to meals, the test is very similar: (1) the meals must be furnished by the employer, (2) for the convenience of the employer; and (3) on the business premises of the employer. Thus, a voucher system or something similar, which would otherwise be provided for free at the business premises, would not work as a tax-free fringe benefit.7
For these reasons, companies such as Google would not be able to provide the same tax-free benefits to their employees if they were to allow remote employees to expense these otherwise free meals. Moreover, Google may not be able to take advantage of a deduction that would otherwise be allowed for providing qualifying meals under §119.8 This may be one reason that companies such as Google have cut back or cut off free meals (or meals that could be expensed) for remote workers.
The good news for employees and employers alike, however, is that the IRS has said that snacks provided by an employer may still be excluded from gross income.9 So, feel free to grab some coffee or a pack of cashews, as these items remain a tax-free fringe benefit.
1 See Roberto Ferdman, There may be no such things as a free lunch—not even at Google or Facebook, The Washington Post, available at: https://www.washingtonpost.com/news/wonk/wp/2014/09/05/there-may-be-no-such-thing-as-a-free-lunch-not-even-at-google-or-facebook/;
2 IRS Technical Advice Memorandum (TAM) No. 20190301,
3 Internal Revenue Code § 119 (valid through 2025).
4 A question posed by many news outlets. See Paul Caron, Google Cuts Off Free Food For Its Employees Working From Home During COVID-19, available at: https://taxprof.typepad.com/taxprof_blog/2020/05/google-cuts-off-free-food-for-its-employees-working-from-home-during-covid-19.html; Jennifer Ellias, Google tells employees they can’t expense food or other perks when working from home, CNBC, available at: https://www.cnbc.com/2020/05/06/google-tells-employees-not-to-expense-food-perks-in-work-from-home.html.
5 See I.R.C. § 61(a).
6 218 Ct.Cl. 322 (1978)
7 A similar scenario played out in 1977 when New Jersey attempted to institute a voucher system to provide meals to state troopers who didn’t have the time to stop at state meal stations. The IRS assessed a deficiency against one state trooper for failing to include the cost of these vouchers as gross income. The case went to the Supreme Court, where the Justices upheld the deficiency. See Commissioner v. Kowalski, 434 U.S. 77 (1977).
8 Under the Tax Cuts and Jobs Act, an employer who provides meals or lodging which qualifies as a fringe benefit under § 119 would also be allowed to take expenses as a deduction (up to 50%).
9 And see the following website for additional benefits which may be excluded you’re your taxes this year: https://www.irs.gov/government-entities/federal-state-local-governments/de-minimis-fringe-benefits. According to this resource, small snacks and occasional treats are considered “de minimis fringe,” which means that their cost is too small to truly expense on your taxes. Some companies have even sent out small “care packages” with snacks that employees would have been provided in the office. Whether these care packages may still be considered a fringe benefit remains to be seen, but it’s unlikely that the IRS would want to know about your fifty-cent bag of chips.
Featured Image by Rebecca Sidebotham.
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