Beginning on January 1, 2026, employers will no longer be able to claim deductions for certain employee meal expenses. Introduced by the Tax Cuts and Jobs Act (TCJA), IRC Section 274(o) eliminates tax deductions presently available for expenses associated with employer-operated eating facilities and meals provided for the convenience of the employer.

Background

IRC Section 274 disallows certain deductions for meals, entertainment, travel, qualified transportation and other expenses that would otherwise be allowable under IRC Section 162. The TCJA expanded the scope of IRC Section 274 in various ways, including the addition of IRC Section 274(o). Unlike some of the other TCJA amendments to IRC Section 274, IRC Section 274(o) included a delayed effective date and will begin to limit deductions for expenses paid or incurred after December 31, 2025.

Starting January 1, 2026, the following employee meal expenses will no longer be deductible:

• Expenses for the operation of an employer-operated eating facility, including food and beverages associated with such facilities
• Expenses for meals provided for the convenience of the employer

The deduction disallowance is based on the time the expense is incurred or paid and thus would apply mid-year for non-calendar fiscal year taxpayers.

While IRC Section 274(o) impacts the deductibility of these expenses by employers, it does not affect the tax treatment of employer-provided meals to employees. If the relevant conditions are satisfied, employers can continue to provide free or discounted on-site meals without including the value of the meals in employees' taxable compensation. Treasury and the IRS have yet to identify guidance on IRC Section 274(o) as a priority; in contrast, guidance on the taxation of employer-provided meals has been on the Treasury Priority Guidance Plan for a number of years.

Employer-operated eating facilities

An employer-operated eating facility is defined in the regulations promulgated under IRC Section 132(e)(2) as a facility that is (1) owned or leased by the employer, (2) operated by the employer or a contracted third party, (3) located on or near the business premises, and (4) used to provide meals to employees during or immediately before or after their workday. IRC Section 132(e)(2) excludes the value of meals provided at such a facility if the revenue derived from the facility — taking into account certain deeming rules associated with convenience of the employer meals — equals or exceeds the facility's costs. The statute does not itemize expenses that are "for the operation of" an employer-operated eating facility. Absent clarification, such nondeductible expenses may include wages for staff, food and beverage costs, equipment, lease payments and/or allocable amounts of depreciation. Guidance may clarify what expenses are subject to the limitation.

Meals provided for convenience of the employer

A meal provided for the convenience of the employer is excluded from income under IRC Section 119, if the meal is furnished on the employer's business premises. The regulations under IRC Section 119 state that a meal is furnished for the convenience of the employer if it is provided for substantial noncompensatory business reasons. Regulatory examples include employees who must be available for an emergency call during the meal period, employees working in remote locations with limited access to eating facilities and those restricted to short meal periods.¹

Implications

Employers who maintain employer-operated eating facilities or provide meals for the convenience of the employer may want to prepare for the changes effective January 1, 2026, by:

• Identifying expenses related to eating facilities and employee meals to determine nondeductible expenses
• Projecting the potential impact of lost deductions
• Monitoring potential changes to the scope of IRC Section 274(o) in pending tax legislation
• Keeping an eye out for guidance that may be issued by Treasury and the IRS