Watch out: Free lunch at work could be taxable

Some Silicon Valley businesses are getting IRS scrutiny for supplying workers with no-cost food, which 'can't be just disguised wages.'

By Bruce Kennedy Apr 15, 2013 9:50AM

Two women sharing a meal at a diner © Cultura Limited, SuperstockIs sitting down with your colleagues for a work-funded meal a chance to brainstorm and collaborate -- or a fringe benefit that should be taxed?

That's an issue The Wall Street Journal recently reported on as the IRS looks at some companies, particularly in high tech, that regularly provide free food to their employees.

As an example, the WSJ points to Google (GOOG). The search engine giant has more than 120 free-for-employee cafes at its facilities around the world serving over 50,000 meals daily. Google's website notes its offices and cafes "are designed to encourage interactions between Googlers within and across teams, and to spark conversation about work as well as play."

Facebook (FB), Yahoo (YHOO), Twitter and other tech companies offer free meals at their offices, and many workers consider the food a reasonable trade-off for their 24/7, high-pressure jobs. But some tax experts believe those meals should be treated as taxable income.

If the IRS is "in there auditing, and you're not taxing the meals, they're going to challenge you on it," employment-tax attorney Thomas Cryan Jr. told The Journal. "I have worked on audits for large tech companies in Silicon Valley on this exact issue."

Cryan says employers caught in that situation usually settle with the feds and come up with a fair-market value for the free meals. Those costs are then passed on to the employees, but with extra pay included in their checks to cover the larger tax bills.

Part of this issue is how a company structures its work culture and whether companies that offer their workers free food have an unfair advantage over rival organizations.

"You can provide free meals to employees for the convenience of the employer," William Weissman, a partner at the Walnut Creek, Calif., branch of Littler Mendelson PC, told the Silicon Valley Business Journal. "The question is what that really means and are all Valley companies providing meals just for that purpose? Food can't just be disguised wages."

While hundreds of millions of dollars could be at stake, some observers wonder if an IRS crackdown on free food is worth the potential cost it might have on the Silicon Valley's successful business model.

More on moneyNOW

Apr 15, 2013 3:46PM
WOW- I hope that applies to Congress - I hear the offices up there pay $2,300.00  a month for coffee and doughnuts -  I wonder what they pay for lunch -
Apr 15, 2013 12:36PM
So now the federal government, prevented from significantly raising income taxes like Reagan did twice, is going the nickel-and-dime route a lot of state governments have gone because income tax increases are tickets out of office.  Higher road tolls, license fees, etc.  One county in Maryland is proposing a "rainwater tax" based on the amount of roof and driveway square footage you have to pay for storm drains, etc.  There are tax districts in Pennsylvania that have a "right to work" tax.  It's getting ridiculous.
Apr 15, 2013 4:17PM

When does it stop? We have to pay city taxes here noted as "The privilage of the right to work in Denver." Um, hey morons, our company brings in people to your city that wouldn't normally be there to buy lunch, gas for their car, shop on their lunch breaks, etc, etc and you tax them for it?? They are already providing additional revenue to your city!


This is getting out of hand. Every time I turn around a new tax is being issued and the government is dipping even further into the American's back pocket. When was the last time anyone felt like their paycheck could actually stretch? Not me. I used to be okay and now I'm hand to mouth with the rising cost of everything across the board. Enough already. Go bother some rich people and leave me alone!

Apr 15, 2013 5:00PM
So does this mean all perks of the job will be taxable?  So will the Obama's be taxed for cost of birthday bashes, airforce one for personal use....?  Cool, it's about time the fat cats start paying their fair share!
Apr 15, 2013 5:06PM
That's a great idea.  Let's find more ways to punish people who actually work for a living.
Apr 15, 2013 5:05PM
if your in congress everything is free ....they just have us taxpayers flip the bill for everything
Apr 15, 2013 5:00PM
I wish the free lunches in schools would be taxed.  My food is taxed.  The clowns eating the free food in schools buy snacks with 20 dollar bills.  Their parents pick them up in newer and better cars than mine. And, when I eat bananas, I pay tax.  When I find an EBT receipt in the parking lot showing pork chops, steaks, fine meats, chicken, etc, I see "TAX FORGIVEN.'  Bitch at me if you like, but I know who will be doing the bitching.  I am tired of the freeloaders but when there are 53% of them and only 47% paying the taxes, the clowns in CONgress have re-election guaranteed!
Apr 15, 2013 5:13PM
Apr 15, 2013 4:56PM


Apr 15, 2013 5:17PM
Does this mean that the vacations being taken by the obama family be considered income. The security costs private transportation and free meals are for their benefit. For any working individual these items are considered additional income if paid by a company, unless it is 100% business related. Since none of the obama family works, including obama it all must be pleasure and therefore should be considered income.
Apr 15, 2013 4:44PM
So it's true: There ain't no such thing as a free lunch.
Apr 15, 2013 4:40PM
Tax and spend and spend and spend. I'm just waiting on when they start taxing the air we breath.. I'm not for the big corps but a free lunch every now and then is nice.
Apr 15, 2013 5:08PM

OK people need to understand the issue the IRS is going to tax this IF the company is trying to write off the expense as employee cost. If your employer gives you a free lunch and does not try to deduct the expense then you would not have to pay income tax on it. Companies list it as an employee benefit which means it is a tax write off for them that makes it non monetary compensation. For instance if a company could write off employee non monetary compensation without it being counted as income for the employee then an employer could pay you by giving you a house to live in and a car to drive so you wouldn't have to pay for either.


That being said the tax and spend mentality of our various levels of government are way out of control.



Apr 15, 2013 5:04PM
What is a tax like this going to fund?  What program is it going into, what road is it going to build, school, etc?  Is it making up for a shortcoming in the tax base somewhere?  Why is there a shortcoming?  Is it because we (and by we, I mean govt) have spent too much on programs, special interest, yada, yada, yada?  What is the difference between an employer that wants to supply their employees with lunch and the Govt supplying certain "benefits" to citizens tax free?  Last I checked TANF wasn't taxable on any federal or most state levels.  Why should an employee be taxed because their employer is gracious?  Isn't it the same thing?  What happens when those of us that don't take advantage of federal programs that already suck up all tax payer money, decide to cash in when we decide we have had enough?   
Apr 15, 2013 7:02PM
Tax food?  Well, then they should tax the electricity for lights and heat, the building for shelter, toilet paper in the rest rooms.  Heck every employee could do without these things supplied by the employer.   

Anyway, don't go after the bankers, oil companies and big time investment cheats.  If you do, then how would anyone get elected next go around?
Apr 15, 2013 6:43PM
We need to get ALL ballots to have a box labeled NONE OF THE ABOVE.
Apr 15, 2013 6:31PM
Haven't any of these young workers ever heard the old expression, "There's no such thing as a free lunch"?  The IRS Tax Code is over 74,000 pages and 4 million words...growing weekly. 
Apr 15, 2013 5:30PM
I guess with all this taxation even the military chow halls and MRE's are not safe.
Apr 15, 2013 5:44PM

Don't hold your breath on that one. I think Congress has didn't strokes for different folks, and that don't mean you. Please pay your govenment, they need to get all the money they can get,and if they can't get your money on things like this, well they can by uping the annie (taxes).

But please keep sending other countries our hard earned dollars. Thank you, and hope all of you in government have a nice day, you a-- holes.

Apr 15, 2013 5:34PM
Tax free meals. Go ahead that will make free fast food workers lunches happy. I always did not think Wal-Mart donuts were worth being taxed. These idiots trying to tax everything.
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