There is a change in the new tax law that has been under the radar but can be significant for the restaurant industry. Food and beverages provided to employees through an eating facility operated by the employer that is located on or near the employer’s business premises are considered a de minimis fringe benefit and is excludable from an employee’s gross income and wages for employment tax purposes.
LIMITATIONS TO EXPENSES
Staff meals at restaurants would qualify as a de minimis fringe benefit. Up until now, there was an exception to the 50 percent limitation on the deduction of meals when the expense for food and beverages was considered a de minimis fringe benefit. This was fully deductible by the employer but all of this has now changed. For amounts incurred and paid after December 31, 2017, and until December 31, 2025, the new law expands the 50 percent limitation to expenses of the employer associated with providing food and beverages to employees through an eating facility that meets the requirements for de minimis fringes and for the convenience of the employer. Such amounts incurred and paid after December 31, 2025, are not deductible.
WHAT DOES THIS MEAN FOR RESTAURANTS OWNERS?
If you are providing staff meals to your employees, you are most likely not including this benefit in their wages. That remains unchanged. However, the cost of these meals will only be 50 percent deductible until December 31, 2025, and then they will not be deductible at all.
WHAT SHOULD YOU DO NOW?
To start, you should make sure that you are calculating the cost of the meals and beverages, or at a minimum, arriving at a good estimated amount. You should categorize these expenses separately and not include them in your cost of goods sold so that they can be reported accurately. Of course, you may also consider eliminating these meals or charging your employees for the cost to offset the reduction in your tax deduction.
In addition, the new law disallows a deduction for expenses associated with providing any qualified transportation fringe to employees and, except as necessary for ensuring the safety of an employee, any expense incurred for providing transportation (or any payment or reimbursement) for commuting between the employee’s residence and place of employment.
For additional information please contact the Citrin Cooperman Restaurant and Hospitality Practice.