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IRS Shares Clarifying Guidance on Temporary 100% Deduction for Meal Expenses

The IRS has issued guidance on the 100% deductibility for food or beverage provided by a restaurant. The 100% deduction is temporary and only applies to expenses that are paid or incurred after December 31, 2020, and before January 1, 2023.

The Consolidated Appropriations Act of 2021, from earlier this year, introduced a temporary exception to the limitation on the deduction for meals which would normally be subject to a 50% reduction. The temporary exception under the Consolidated Appropriations Act is designed to offer the restaurant industry some relief during the pandemic by encouraging employers to purchase work meals for employees from restaurants with the incentive of having the cost deducted at 100% as opposed to its usual 50%.

The notice issued by the IRS provides guidance as to what a restaurant” is for purposes of the 100% deduction and defines what meals are covered.

Restaurants

According to the notice issued by the IRS, a restaurant is defined as a business that prepares and sells food or beverages to retail customers for immediate consumption (whether or not the food is consumed on the business’s premises). Take-out meals from a restaurant are also qualified as restaurant meals. Businesses that sell pre-packaged food or beverage, not for immediate consumption, such as a grocery store, liquor store, convenience store, or drug store does not fall under the restaurant category for the purpose of the deduction.

The notice also states that an employer-provided eating facility that is located on the employer’s businesses and is currently excluded from an employee’s gross income as a convenience to the employer does not fall under the restaurant category. Similarly, an employer-operated eating facility that is treated as a fringe benefit is not a restaurant even if the facility is operated by a third party under contract with the employer.

Meals

The meals provided by the restaurant must not be lavish or extravagant and the taxpayer or an employee of the taxpayer must be present at the time that the meals are purchased. Food and beverage costs mean the full cost of such items — including any sales tax, delivery fees, and tips.

For any additional concerns, it is encouraged that you speak with a trusted professional as the legislation is new and unfamiliar.

Is there anything Payroll Systems can help you with as you accommodate rapid legislation changes? Reach out and talk to us about the easy-to-scale solutions you need for managing your workforce.

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This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.