Written By: Mark Gallegos, CPA, MST
Beginning January 1, 2026, a long-delayed provision of the Tax Cuts and Jobs Act (TCJA) will significantly change the tax treatment of employer-provided meals. Under IRC Section 274(o), many employee meal expenses that have historically been 50% deductible will become entirely non-deductible, unless a specific exception applies.
This change applies to amounts paid or incurred after December 31, 2025.
What Changes in 2026
Starting in 2026, no deduction will be allowed for the following categories of employer-provided meals:
- Meals provided for the convenience of the employer under IRC Section 119(a), such as meals provided to keep employees on-site during busy periods, emergencies, or short meal breaks.
- Employer-operated eating facilities under IRC Section 132(e)(2), including cafeterias and similar programs. The disallowance applies not only to food and beverages, but also to associated operating costs, such as staffing, third-party food service contracts, and related expenses.
Through 2025, these costs were generally 50% deductible. Beginning in 2026, they will be 0% deductible.
Importantly, this change affects the employer’s deduction, not the employee’s tax treatment. In many cases, meals may still be excluded from employee taxable income if the applicable fringe benefit requirements are met, but the employer will no longer receive a deduction.
What Remains Deductible
Not all meal deductions are disappearing. Several categories remain intact:
50% Deductible
- Business meals with clients or prospects
- Business travel meals (assuming the meals are ordinary and necessary, not lavish or extravagant, properly substantiated, and the taxpayer or employee is present)
100% Deductible
- Employee recreational or social events (such as holiday parties or staff picnics)
- Meals treated as taxable compensation and included in employee wages
- Meals made available to the general public
- Certain reimbursed meal expenses, depending on structure and facts
New Exceptions Under H.R. 1
The One Big Beautiful Bill Act (H.R. 1) introduced limited exceptions to the full disallowance under Section 274(o). These exceptions may apply to certain employers, including:
- Businesses that sell food and beverages to customers (such as restaurants or catering operations) and also provide meals to employees
- Certain fishing vessels and fish processing facilities
These exceptions are narrow and fact-specific, requiring careful analysis and proper accounting segregation.
Planning Now for 2026
Employers should begin preparing by:
- Identifying all employee meal and food programs
- Separating deductible and nondeductible meal costs in the general ledger
- Estimating the tax impact of lost deductions
Recommended General Ledger (GL) Accounts for 2026 and Beyond
To prepare for the Section 274(o) changes, businesses should segregate meal expenses by deductibility in their general ledger. This will simplify compliance, reduce M-1 adjustments, and avoid surprises at year-end.
We recommend, at a minimum, the following GL structure:
50% Deductible Meals
- Business & Client Meals - 50% Deductible
- Client, prospect, vendor, and business associate meals; business travel meals
- (Requires standard substantiation: date, amount, attendees, business purpose)
100% Deductible Meals
- Employee Social & Recreational Meals - 100% Deductible
- Holiday parties, staff picnics, employee-wide events
Public / Promotional Meals - 100% Deductible
- Meals provided at events open to the public or for promotional purposes
Meals Treated as Compensation - 100% Deductible
- Meals included in employee W-2 wages (when applicable)
0% Deductible (Beginning in 2026)
- Employee Meals - Onsite Convenience (Non-Deductible)
- Onsite cafeterias, shift meals, busy-season meals, meals provided when employees cannot leave premises
- De Minimis Meals & Snacks - Non-Deductible
- Coffee, beverages, snacks, pantry items, breakroom food
Best Practice Tip
Businesses with both customer-facing food operations and employee meal programs should maintain separate GL accounts to clearly distinguish deductible meal expenses from non-deductible employee benefits.
Bottom Line
Beginning in 2026, many employer-provided meals shift from partially deductible to fully nondeductible. Early planning, proper classification, and proactive strategy are key to managing the impact.
If you would like assistance reviewing your current meal policies or preparing for the 2026 changes, please contact your tax advisor.
