QUESTION: Our break room has a refrigerator stocked with drinks that are available to everyone at the office, including guests. We also usually have cookies and other treats available. Are these snacks taxable benefits that we need to track? That would be a lot of trouble for a small benefit (and it would really undermine the open, fun atmosphere we are trying to create here).
ANSWER: Like anything else of value, food provided to employees is a taxable fringe benefit unless the Code has an applicable exclusion. In your case, the relevant exclusion is probably the exclusion for de minimis fringe benefits.
That exclusion balances three factors:
If, in light of a benefit’s value and frequency, it would be unreasonable or administratively impractical to track each employee’s benefit, the benefit can be disregarded.
Because the exclusion depends on the facts and circumstances, and there is little authority on this subject, it can be challenging to figure out whether the exclusion applies. For example, the IRS has indicated that coffee, doughnuts, and soft drinks may be excludable if they are occasional or infrequent. But the IRS has also said that daily snacks with a value of one dollar could be taxable as wages, because even benefits that are small in amount will be taxable if they are provided on a regular basis. (Fixed value and regularity presumably suggest that it will be easier for the employer to determine the value given to each employee).
Your situation does not match either of those scenarios because your snacks are not “occasional or infrequent,” and the benefit received may vary greatly by employee (i.e., the value is not fixed). Your situation more closely resembles the facts of an IRS memorandum that applied the de minimis fringe benefit exclusion to food and beverages offered on a continual basis in a common area. There the IRS said: “Generally, quantifying the value consumed by each employee of snacks that come in small, sometimes difficult to quantify portions and are stored in open-access areas is administratively impractical given the low value of each snack portion, even if the employer offers the snacks on a continual basis.” While that memo cannot be cited as precedent, it suggests the IRS might reach a similar conclusion in your case absent additional facts that tip the scales back toward taxability.
“Tax reform (Tax Cut and Jobs Act of 2017) changed the overall treatment of meals and entertainment for business and employers. The stricter and reduced limits should be reviewed for impact to business deductions and potential fringe benefits for employees if the food provided to employees cannot be excluded.” said Stephen Varner, CPA, a senior tax manager at Kruggel Lawton.
Note that if you provided meals to employees at recognized meal times, rather than snacks and drinks for consumption throughout the day, a different set of complex rules would determine whether the benefit is taxable.