Subject Line: No Such Thing As a Tax-Free Lunch Silicon Valleys high-tech employers are famous for feeding their employees at work. Its not entirely selfless — feeding people helps attract talented workers and keep them chained to their desks. At this point, its no longer a novelty — its an expected part of Silicon Valley culture. Companies routinely make headlines for luring away each others executives and programmers. But back in 2008, Facebook made headlines for poaching Googles chef! Employers know that if theyre going to use lunch to compete for talent, it oughta be good. The average computer nerd may be perfectly happy scarfing down Cheetos in his parents basement. But six-figure software engineers demand more. So, for example, Google offers employees 30 different cafes at their Mountain View campus, serving delicacies like squash-corn-pecan dumplings, and daal saagwala from Northern India: a mix of soft kale, spinach, and mustard greens, tossed with three types of beans and lentils in a broth singing with distinct cumin notes and a pleasant cilantro flourish. (We suspect that if they had served anything in honor of last months International Bacon Day, it would have been so insanely good that you could never look a pig in the eye again.) The best part? Its all free! But that may not be true much longer, if the food critics at the IRS have their way. Last month, they released their 2014-2015 Priority Guidance Plan, which reveals their 317 priority projects we intend to work on actively during the plan year. And there on Page 7, sandwiched between Regulations under §86 regarding rules for lump-sum elections and Regulations on cafeteria plans under §125, youll find Guidance under §§119 and 132 regarding employer-provided meals. Ironically, free lunches have nothing to do with cafeteria plans. The relevant regulations at 26 CFR 1.119-1 provide that The value of meals furnished to an employee by his employer shall be excluded from the employee’s gross income if two tests are met: (i) The meals are furnished on the business premises of the employer, and (ii) the meals are furnished for the convenience of the employer. Sounds pretty straightforward, right? Marketing software maker Moz gives employees a never-ending cereal bar. They serve it at their business headquarters, and they do it to keep employees from running to the In-N-Out Burger down the street. So whats the problem? Well, the IRS thinks that all that Capn Crunch may be more than just a convenient employee perk. Theyre worried that its actually disguised compensation. And theyre licking their chops at the thought of all the tasty revenue they can raise if theyre right. (Dont even get them started on that 24-7 on-tap keg at apartmentrental!) If the IRS concludes that meals are part of compensation, theyll be included in employees W2s and taxed just like the rest of their paychecks. And while the occasional daal saagwala might not sound like much, those meals can add up fast. Lets see here . . . 1,000 employees eating $8 meals, five times per week, adds up to $2 million in new taxable income per year from just this one example — plus more for Social Security and Medicare. No wonder the carnivores at the IRS are sharpening their knives! (Of course, theyll have to issue even more new regulations telling us how to value all those meals. But bureaucrats love writing regulations even more than they love Capn Crunch!) You may not be worried about all this if youre not getting a free lunch at work. But remember, the IRS has 316 other priority projects on its plate. And its our job to keep an eye out for the ones that hit your wallet. So call us when youre ready for the plan you need to protect yourself from them all!
Posted on: Wed, 10 Sep 2014 15:58:36 +0000
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