IRS Going After Free Food to Workers

[ESF]

Thoughts?

consumerist.com/2014/09/02/irs-turning-its-baleful-gaze-at-company-cafeterias-that-churn-out-free-food/

IRS Turning Its Baleful Gaze At Company Cafeterias That Churn Out Free Food
By Mary Beth Quirk September 2, 2014


Do you hear that noise? It’s thousands of forks clattering in the hands of Silicon Valley employees currently enjoying a free lunch. The Internal Revenue Service is taking a closer look at the trend of company cafeterias shoveling free food onto employees’ plates, saying that smorgasbord is a taxable fringe benefit.

Free food is a no-brainer for companies like Google, Yahoo!, Facebook and Twitter — if you don’t ever have to leave the office to eat, you can keep working longer hours.

But as the Wall Street Journal reports, the IRS is paying attention to these freebie fests, by way of routine audits at some companies, according to tax lawyers.

If an employer hasn’t withheld taxes for those meals, the IRS might try to collect back taxes, most likely from the company and not the worker, though in theory, it could do so.

It’s also listing “employer-provided meals” on its annual list with the U.S. Treasury Department top tax priorities for the fiscal year ending in June 2015, with “new guidance” for companies.

“I suspect this is going to be guidance on these free cafeterias, that the benefit has got to be included in income,” one employment-tax attorney tells the WSJ.

It’s a tricky gray area — meals provided by your company that aren’t a lunch or dinner here and there are considered a taxable fringe benefit, like using the company car.

But meals don’t have to be taxed if workers get them for a “noncompensatory” reason for the “convenience of the employer.”

So your boss has to provide meals if you work say, in a desert outpost with no other options around, or if the nature of your job makes it impractical to leave the premises.

As such, many of those free-meal programs could fit under the convenience test, argue some lawyers, saying it saves time for workers, and can provide healthier options as well. Plus, one points out,”maybe you don’t want your employees running around in other eateries talking business.”

Those free meals aren’t going anywhere just yet, however, as experts believe the issue will be battled out in the courts.

[oreos]

I don't agree with treating free food as a taxable benefit. How would they go about valuing the benefit?

For example, I could take a free cafeteria meal that would otherwise cost $10 from a fast food place. Would I then have to pay tax on $10? If so, this tax could personally cost me $3 or $4 depending on my tax bracket. This would make me mad because, if I didn't take free food from work, I might, instead, bring lunch from home that only costs me $2 to prepare.

ETA: I took the time to look this up. In Canada, it is a taxable benefit where the benefit is the cost of the meals. I guess I'm still unsure how the accounting would work on this. Would the company track whether you took a hamburger and fries versus a single yogurt? If so, how do they allocate the overhead cost?

[blink]

I know the article focuses on Silicon Valley, but what about fast food places? I know getting a free meal during work is quickly diminishing among some franchises, but they also offer employee discounts and such and I wonder how this could affect them, if it would at all.

[NewOrleans]

...or they could tax GE and the like.   ^o)

[ESF]

Sept 2, 2014 17:28:30 GMT -5 oreos said:

I don't agree with treating free food as a taxable benefit. How would they go about valuing the benefit?

For example, I could take a free cafeteria meal that would otherwise cost $10 from a fast food place. Would I then have to pay tax on $10? If so, this tax could personally cost me $3 or $4 depending on my tax bracket. This would make me mad because, if I didn't take free food from work, I might, instead, bring lunch from home that only costs me $2 to prepare.

ETA: I took the time to look this up. In Canada, it is a taxable benefit where the benefit is the cost of the meals. I guess I'm still unsure how the accounting would work on this. Would the company track whether you took a hamburger and fries versus a single yogurt? If so, how do they allocate the overhead cost?

I don't know how exactly they'd measure it.  It may be that they audit and assign a generic value, like whatever the market rate for an all you can eat buffet actually is.

I'm really torn on this issue.  On the one hand, it seems petty and like it's more paperwork than it's worth.  

On the other, the explosion of corporate cafeterias are not without their side effects.  Companies in Silicon Valley love them because it means people stay at work longer, and as a result, they hire fewer people.  More importantly, it's really, really hurt small local businesses.  They used to have a reliable lunch and/or evening crowd, and increasingly, they don't because everyone eats the food Google gives them.  

Similarly, in San Francisco at least, the small cafes on the ground floor of commercial buildings that used to be open to the public are being bought, and replaced with dining options that are only open to those in the building, which in turn is hurting the vibrancy of the downtown area.

Finally, the value of the meal plans do skew wages.  Why should someone get thousands and thousands of dollars of restaurant quality food tax-free, whereas someone at the company next door is taxed on all his income and has to buy lunch on after tax dollars.

Ultimately, I'm not convinced this is going to be a revenue generator for the IRS due to the cost of monitoring it.  But I also wonder if cracking down on it can reverse the trend so that it saves small businesses and jobs in other cities where this awful trend has not spread.

[y4m]

I think it's silly. Our office has some free meals and snacks, but it also has free tampons in the restroom and a library full of free books. And a big free parking lot come to think of it. Why would one of these fringe benefits be taxable but not the others? These are all small quality of life things that help employers market themselves, not income.

[IIOY]

I will settle for the IRS taxing baggage and other airline fees.

[ESF]

Sept 2, 2014 17:34:01 GMT -5 blink said:

I know the article focuses on Silicon Valley, but what about fast food places? I know getting a free meal during work is quickly diminishing among some franchises, but they also offer employee discounts and such and I wonder how this could affect them, if it would at all.

Yeah, I don't know.  I'm guessing that if you only have a 15 minute break, then it may fall under one of the exceptions, whereas it's harder to say that Bob Programmer needs to stay at Zynga and can't leave to buy a burger because Farmville needs a redesigned cow ASAP.

This is why I think it's a tough issue.  It's better from a policy standpoint than a revenue generation standpoint.  So I'm on the fence about whether it's worth it.

[oreos]

Sept 2, 2014 17:42:29 GMT -5 ESF said:

Sept 2, 2014 17:28:30 GMT -5 oreos said:

I don't agree with treating free food as a taxable benefit. How would they go about valuing the benefit?

For example, I could take a free cafeteria meal that would otherwise cost $10 from a fast food place. Would I then have to pay tax on $10? If so, this tax could personally cost me $3 or $4 depending on my tax bracket. This would make me mad because, if I didn't take free food from work, I might, instead, bring lunch from home that only costs me $2 to prepare.

ETA: I took the time to look this up. In Canada, it is a taxable benefit where the benefit is the cost of the meals. I guess I'm still unsure how the accounting would work on this. Would the company track whether you took a hamburger and fries versus a single yogurt? If so, how do they allocate the overhead cost?

I don't know how exactly they'd measure it.  It may be that they audit and assign a generic value, like whatever the market rate for an all you can eat buffet actually is.

I'm really torn on this issue.  On the one hand, it seems petty and like it's more paperwork than it's worth.  

On the other, the explosion of corporate cafeterias are not without their side effects.  Companies in Silicon Valley love them because it means people stay at work longer, and as a result, they hire fewer people.  More importantly, it's really, really hurt small local businesses.  They used to have a reliable lunch and/or evening crowd, and increasingly, they don't because everyone eats the food Google gives them.  

Similarly, in San Francisco at least, the small cafes on the ground floor of commercial buildings that used to be open to the public are being bought, and replaced with dining options that are only open to those in the building, which in turn is hurting the vibrancy of the downtown area.

Finally, the value of the meal plans do skew wages.  Why should someone get thousands and thousands of dollars of restaurant quality food tax-free, whereas someone at the company next door is taxed on all his income and has to buy lunch on after tax dollars.

Ultimately, I'm not convinced this is going to be a revenue generator for the IRS due to the cost of monitoring it.  But I also wonder if cracking down on it can reverse the trend so that it saves small businesses and jobs in other cities where this awful trend has not spread.

Those are good points. I wouldn't be surprised if some companies cancelled free food programs just because of the additional paperwork (e.g. meal tracking) that would be required in their use.

In my area, I only hear about free meals being provided in remote work sites. In this case, it's not considered a taxable benefit.  

[y4m]

You'd also have to account for remote workers. Do I have to pay for Wednesday salad day even though I'm only in the office for it say 6 or 8 times a year? Or am I not allowed to participate because I'm not taxed?

What about the coffee?

It just becomes a mess.

[ESF]

Sept 2, 2014 17:43:43 GMT -5 y4m said:

I think it's silly. Our office has some free meals and snacks, but it also has free tampons in the restroom and a library full of free books. And a big free parking lot come to think of it. Why would one of these fringe benefits be taxable but not the others? These are all small quality of life things that help employers market themselves, not income.

But isn't that one of the reasons given for why health insurance should not be taxed? Or other employee benefits?

As someone who thinks we need reform so that health insurance benefits should be taxed like income, I'm having a hard time agreeing that other benefits worth thousands a year shouldn't be taxed as well.  Of course, taxing tampons and use of the water filter and whatnot is ridiculous.  But I'm not sure I'm comfortable saying that there is no limit to the amount of perks that can be offered without tax consequence.

[irishbride2]

Crap. There goes my ten percent discount at the school cafeteria

Eta coffee is a great question. If your enployer has a pot brewing will be all need to sign out each cup we fill so they can report it?

They use the big companies as an example but it's the little guys who are going to get screwed.

[lasagnasshole]

I have no real logical/actual policy thoughts on this, but I am a super bitter Betty over people who get free food and the like at work.

We don't even get free water from the water cooler. It's tap water (which I drink) or paying to join the "water club." I personally provided out office Keurig, and it's bring-your-own-K-cup.

Parties are potluck or charge a fee if it's catered.

I have never worked anywhere that I got anything decent for free. WAAAAAH. I want free shit. Since I can't have it, tax it!

[y4m]

Sept 2, 2014 17:56:08 GMT -5 ESF said:

Sept 2, 2014 17:43:43 GMT -5 y4m said:

I think it's silly. Our office has some free meals and snacks, but it also has free tampons in the restroom and a library full of free books. And a big free parking lot come to think of it. Why would one of these fringe benefits be taxable but not the others? These are all small quality of life things that help employers market themselves, not income.

But isn't that one of the reasons given for why health insurance should not be taxed? Or other employee benefits?

As someone who thinks we need reform so that health insurance benefits should be taxed like income, I'm having a hard time agreeing that other benefits worth thousands a year shouldn't be taxed as well.  Of course, taxing tampons and use of the water filter and whatnot is ridiculous.  But I'm not sure I'm comfortable saying that there is no limit to the amount of perks that can be offered without tax consequence.

Well healthcare shouldn't be employer provided anyway.  

I highly doubt my employer is using the free avocados at the office as a way to funnel me extra money tax free.  It would be a lot more efficient to just give me that money, even if it was taxed, because it wouldn't require the staff of several people we pay to stock, prepare, and manage that food.  They do it because of the marketing bang for their buck recruitment-wise.  It's basically like paying for a commercial I get to eat (well, 8 times a year if I'm actually in the office anyway).    

[meshaliuknits]

Someone should pay me to drink the office provided coffee.

Sent from my EVO

[ESF]

Sept 2, 2014 17:56:34 GMT -5 irishbride2 said:

Crap. There goes my ten percent discount at the school cafeteria

Eta coffee is a great question. If your enployer has a pot brewing will be all need to sign out each cup we fill so they can report it?

They use the big companies as an example but it's the little guys who are going to get screwed.

I do think that this crackdown has the potential to go too far and be too burdensome.

But does anyone think there's ought to be a limit to the value of free perks a company can offer to employees without tax consequence?  Is there some level of benefits that you are uncomfortable with?

I have no problem with a company spending a few dollars a week per employee on a kitchen stocked with coffee and juice. Or weekly staff meetings.

 But I see a difference between those kinds of things, and providing someone $25+ in meals every single day.

I'm not saying that taxing the Google cafeteria is the right way to go, but I take issue with comparing a $5000-$7500+ benefit with a Keurig machine.  At that price, it's more akin to health insurance or retirement benefits, not a $100 worth of coffee. 

[teflepi]

Sept 2, 2014 18:01:34 GMT -5 lasagnasshole said:

I have no real logical/actual policy thoughts on this, but I am a super bitter Betty over people who get free food and the like at work.

We don't even get free water from the water cooler. It's tap water (which I drink) or paying to join the "water club." I personally provided out office Keurig, and it's bring-your-own-K-cup.

Parties are potluck or charge a fee if it's catered.

I have never worked anywhere that I got anything decent for free. WAAAAAH. I want free shit. Since I can't have it, tax it!

You work for the gubment and, thus, get more. So there!

[ESF]

Sept 2, 2014 18:03:48 GMT -5 y4m said:

Sept 2, 2014 17:56:08 GMT -5 ESF said:

But isn't that one of the reasons given for why health insurance should not be taxed? Or other employee benefits?

As someone who thinks we need reform so that health insurance benefits should be taxed like income, I'm having a hard time agreeing that other benefits worth thousands a year shouldn't be taxed as well.  Of course, taxing tampons and use of the water filter and whatnot is ridiculous.  But I'm not sure I'm comfortable saying that there is no limit to the amount of perks that can be offered without tax consequence.

Well healthcare shouldn't be employer provided anyway.  

I highly doubt my employer is using the free avocados at the office as a way to funnel me extra money tax free.  It would be a lot more efficient to just give me that money, even if it was taxed, because it wouldn't require the staff of several people we pay to stock, prepare, and manage that food.  They do it because of the marketing bang for their buck recruitment-wise.  It's basically like paying for a commercial I get to eat (well, 8 times a year if I'm actually in the office anyway).    

But isn't a good health insurance plan also a recruiting thing?  I bet Google employees care more about a good health insurance plan than getting an organic chicken for lunch.  They are two sides of the same coin.

[irishbride2]

Sept 2, 2014 18:12:05 GMT -5 ESF said:

Sept 2, 2014 17:56:34 GMT -5 irishbride2 said:

Crap. There goes my ten percent discount at the school cafeteria

Eta coffee is a great question. If your enployer has a pot brewing will be all need to sign out each cup we fill so they can report it?

They use the big companies as an example but it's the little guys who are going to get screwed.

I do think that this crackdown has the potential to go too far and be too burdensome.

But does anyone think there's ought to be a limit to the value of free perks a company can offer to employees without tax consequence?  Is there some level of benefits that you are uncomfortable with?

I have no problem with a company spending a few dollars a week per employee on a kitchen stocked with coffee and juice. Or weekly staff meetings.

 But I see a difference between those kinds of things, and providing someone $25+ in meals every single day.

I'm not saying that taxing the Google cafeteria is the right way to go, but I take issue with comparing a $5000-$7500+ benefit with a Keurig machine.  At that price, it's more akin to health insurance or retirement benefits, not a $100 worth of coffee. 

I don't know where my line is but I don't like the idea of insurance being taxable either. It hurts the workers, not the company (nearly as much ). Pro working man! We talk about wanting companies to take into account the total
Person and create more friendly work environments.
We should encourage things that help with that. Not charge workers tax on it. I'd rather that money go towards workers and raise general taxes than anything else, to be honest .

[josieposy]

Sept 2, 2014 18:08:51 GMT -5 meshaliuknits said:

Someone should pay me to drink the office provided coffee.

Sent from my EVO

Bahahaha!

[irishbride2]

I just hate that we use the googles of the world as the examples. This affects many, many, companies of all shapes and sizes. The googles of the world will do what they want regardless of the tiny amount of tax they have to pay in this case. This hurts the smaller companies.

[crazycakes]

Sept 2, 2014 17:34:01 GMT -5 blink said:

I know the article focuses on Silicon Valley, but what about fast food places? I know getting a free meal during work is quickly diminishing among some franchises, but they also offer employee discounts and such and I wonder how this could affect them, if it would at all.

DH is a restaurant manager, and they give shift meals to all employees. They actually had to recently start charging employees tax for their meal, since the IRS came after the order saying he owed taxes on all those meals. It was thousands of dollars! So now employees still get a shift meal, but they have to pay the tax on the amount it would have cost if they purchased it outright.

[LoveTrains]

We absolutely use our health insurance plan as a recruiting tool at my organization. It's a great plan and it helps us recruit talent.

We get free soup on Tuesdays but I don't always partake in it. I would probably stop eating it if I had to pay taxes on it.

[ESF]

Sept 2, 2014 18:17:57 GMT -5 irishbride2 said:

I just hate that we use the googles of the world as the examples. This affects many, many, companies of all shapes and sizes. The googles of the world will do what they want regardless of the tiny amount of tax they have to pay in this case. This hurts the smaller companies.

I think you are probably right on this.  

But I am trying to start a political discussion here!  This is a topic we have not discussed before!  It seems ripe for new opinions!

But to bring this back to Google anyway , I don't think the Google cafeteria is a huge selling point in terms of recruitment.  People want to work at Google because it's Google.  The cafeteria is there because it's cost effective for the company, in that they get more hours out of their workers.  For the few grand or more a year they might pay per worker to provide the food, they get much more than that back in productivity.  Even people that work for Google acknowledge this.  

It seems like if there were rules on food, it should apply to companies of certain sizes and food over a certain value and/or workers over a certain salary range.  I don't know how I'd set the cut off, but I do think that $7500 a year in food benefits to people earning six figures warrants some skepticism, whereas I do not care if a law firm is buying their secretaries and paralegals pizza the first Friday of the month.

[pixy0stix]

After all the shit government workers have to go through, I say tax it all! (Team Harpy!)

[josieposy]

Can I shamefully admit that I can barely remember this part of my tax class? LOL

[kadams767]

Kind of along these lines, does anyone know if companies pay taxes on the money they reimburse employees for meals? I travel frequently for work and have to expense my meals. I don't have a per diem or anything, and the company just cuts me a reimbursement check every month in the full amount of my expenses. I don't get taxed on them, but I definitely eat several thousand dollars of free meals each year this way. Or are these not considered "free" since I have to be away as part of my job? I mean, I'd have to eat whether I was home or away. Should I be taxed on the difference between the $4 salad and pasta I'd make myself at home and the $40 sushi dinner I buy myself on the company dime?

[irishbride2]

Sept 2, 2014 18:49:11 GMT -5 ESF said:

Sept 2, 2014 18:17:57 GMT -5 irishbride2 said:

I just hate that we use the googles of the world as the examples. This affects many, many, companies of all shapes and sizes. The googles of the world will do what they want regardless of the tiny amount of tax they have to pay in this case. This hurts the smaller companies.

I think you are probably right on this.  

But I am trying to start a political discussion here!  This is a topic we have not discussed before!  It seems ripe for new opinions!

But to bring this back to Google anyway , I don't think the Google cafeteria is a huge selling point in terms of recruitment.  People want to work at Google because it's Google.  The cafeteria is there because it's cost effective for the company, in that they get more hours out of their workers.  For the few grand or more a year they might pay per worker to provide the food, they get much more than that back in productivity.  Even people that work for Google acknowledge this.  

It seems like if there were rules on food, it should apply to companies of certain sizes and food over a certain value and/or workers over a certain salary range.  I don't know how I'd set the cut off, but I do think that $7500 a year in food benefits to people earning six figures warrants some skepticism, whereas I do not care if a law firm is buying their secretaries and paralegals pizza the first Friday of the month.

Walk me through why, though. i get it if the tax is on the employer. But its mostly (minus payroll tax) a tax on the employee. So only those who work for large companies should have to pay taxes on it?
The second part (capping the benefits so those who are high earners do not get it for free I get).

[UMaineTeach]

I would be interested in knowing how they will value the food for corporate only food venues (google cafe) vs. public food venues (McD's). Can google just charge employees 1¢ per meal taken there by making it not free whereas McDonald's has a set value of their food that can be readily calculated and not easily dogded unless they want to offer 1¢ meal to the public?

How does 50% meal employee discounts factor into this equation, taxes on the full value? How does the fact that it is food vs 50% off clothes matter?

How come I never had to pay taxes on my Wal-Mart 10% employee discount, but I did have to pay taxes out of my $10 Wal-Mart gift card for employee of the month.

sorry, off topic, back to food

I think there should be a taxable value limit of $10,000 per person. If your employer is giving you less than 10k/year ($192/wk, $38/day for a 5 day wk) in free food, no tax. Value would still have to be tracked, but it would eliminate most low wage employees and small businesses.

[irishbride2]

Sept 2, 2014 19:09:24 GMT -5 UMaineTeach said:

I would be interested in knowing how they will value the food for corporate only food venues (google cafe) vs. public food venues (McD's). Can google just charge employees 1¢ per meal taken there by making it not free whereas McDonald's has a set value of their food that can be readily calculated and not easily dogded unless they want to offer 1¢ meal to the public?

How does 50% meal employee discounts factor into this equation, taxes on the full value? How does the fact that it is food vs 50% off clothes matter?

How come I never had to pay taxes on my Wal-Mart 10% employee discount, but I did have to pay taxes out of my $10 Wal-Mart gift card for employee of the month.

sorry, off topic, back to food

I think there should be a taxable value limit of $10,000 per person. If your employer is giving you less than 10k/year ($192/wk, $38/day for a 5 day wk) in free food, no tax. Value would still have to be tracked, but it would eliminate most low wage employees and small businesses.

I know with other discounts, such as clothing discounts, you pay the tax on the gifted value. So if you buy a $50 shirt, and only have to pay $40 because you have a 20% discount, you have to pay taxes on the $10.