IRS eyes tax on Silicon Valley’s free of charge lunches
Tri-tip, white bass or shallot seared chicken breast? How about all 3? Workers get it gratis at some big tech businesses like Google.
Feel about it: When your business gives you a paycheck, you pay taxes on that revenue. Why not when it pays you in sushi?
That is what the IRS is questioning.
As highlighted in a Wall Street Journal story this week, the IRS is scrutinizing when cost-free employee meals – a day-to-day occurrence at Silicon Valley giants like Google ( GOOG ) , Twitter ( TWTR , Tech30 ) and Facebook ( FB , Tech30 ) — need to be a taxable advantage.
In fact, the company has extra the situation of employer-provided meals to its list of prime tax priorities for the coming year.
Have been the meals to be treated as taxable, the value of the foods would be considered cash flow to the employee. That indicates the employer would owe its share of payroll tax on that cash and the employee would owe cash flow and payroll tax on it as nicely.
So will the elevated scrutiny of the IRS suggest the finish of Silicon Valley’s gratis gourmet lunches?
Not necessarily – or at least not anytime quickly.
Underneath today’s rules, providing occasional food and beverages to employees — e.g., cost-free coffee, soda and snacks – is considered a “de minimis” meal and is not regarded as taxable. Nor are total meals routinely provided on-website, so prolonged as they are served for the “ease” of the employer.
Sink or swim in Silicon Valley
For instance, a firm could supply meals to staff on deadline-driven projects that demand extended hrs and weekends. Or a company might provide totally free foods when the organization is located far from restaurants or when lunch hour is the busiest time of day for the firm.
In all circumstances when an employer serves foods at operate, it can deduct the expense as a company expense.
Should the IRS decide to alter its guidance on what is regarded a “ease” for the employer, it could consider 9 months to a yr to consider result since shifting advice on a tax problem is a multi-layered procedure, said John W. Roth, senior federal tax analyst for tax publisher Wolters Kluwer, CCH .
What’s a lot more, Roth explained, big organizations with deep pockets may possibly make a decision it’s well worth the funds to fight the IRS on this one particular.
The IRS had no comment on the matter.
It’s also attainable the agency will get too occupied to deal with the problem this yr. Employer-provided meals has to compete with the more than 300 other priorities the IRS has listed — a whole lot for an company that several argue is already underfunded and overburdened.
But the reality that it made the IRS priority list at all may possibly suggest that the agency thinks the problem is low-enough hanging fruit that it justifies the investment, stated Christopher Bergin, president and publisher of Tax Analysts.
Nonetheless, it would hardly be the greatest payday about. The cost of organizations creating off employee meals and lodging (which encompasses significantly far more than individuals firms serving free meals each and every day) is about $ two billion a 12 months, according to a latest estimate from the Joint Committee on Taxation.
Cracking down on the meals exclusion piece of that may possibly be minimal-hanging fruit, but it truly is peanuts relative to the estimated $ 400 billion gap in total tax income owed but not paid each yr.
“This is a bit like going by means of garbage cans” to dig up change, Bergin explained. Then once more, “you have got to start off somewhere.”