Posted on 09/12/2014 7:31:37 AM PDT by SeekAndFind
As if its appetite were not insatiable enough already, Obama’s Internal Revenue Service is considering taxing the free lunch.
Some companies offer workers mid-day meals on the house. This encourages their employees to stay near work, dine with colleagues, exchange ideas, avoid nosy competitors, and then return to their duties. These voluntary arrangements are among the things that attract people to high-tech companies like Apple, Google, and PayPal.
According to the Wall Street Journal, “IRS auditors are now flagging the issue and demanding back taxes from companies amounting to 30 percent of the meals’ fair-market value.” So if an employee eats three $25 lunches per week at work, then after 50 weeks, the 30 percent Obama Lunch Tax would cost that worker or his company $1,125 in new taxes.
It would be bad enough to inflict the Obama Lunch Tax prospectively. But applying this as a back tax — likely with penalties and interest — is tyrannical and unconstitutional. America’s founding document forbids ex post facto laws. How can businesses operate in fear of new taxes that may erupt, and then be applied retroactively? What’s to stop the IRS in 2017 from declaring a photocopying tax and docking companies for employees’ personal use of Xerox machines . . . from 2009 through 2016?
(Excerpt) Read more at nationalreview.com ...
Totalitarianism. Call them progressives; call the liberals; call them leftists, communists, socialists or whatever.... THEY ARE FASCIST to the CORE!!!
The IRS probably has a bureau just to come up with ways to tax anything and everything. They probably tax you for paying taxes.
The IRS targets EVERYTHING. To Hell with the IRS.
I remember that this started under Ronald Reagan. Our cafeteria was staffed by our own employees and you gout a great meal for really cheap. Once that was considered a taxable benefit (the price difference between meals here and the immediate area and the size of the portions), the company dismissed the staff and brought in private contractors.
Probably part of it is that the gov’t employee considers himself to be of the “elite” and is resentful that people in the private sector are getting perks that only the elite should have.
It might be sales tax. In Ohio you are charged sales tax for meals eaten at the restaurant but not for carry-out. Soft drinks are always taxed whether in the restaurant, carry-out or bought in a store.
The IRS is also hiring strong men to come by every month and hold people upside down to shake the change out of their pockets.
So the question of the day is - Are representatives and senators taxed for their capitol perks? Meals, health club, barbershop, etc, etc, etc?
Somehow, I doubt it.
I worked at a country club for 10 years and depending on the hours of my shift ,lunch or dinner was always added to my check and taxed. Just like regular compensation. They had a set price for 1 meal to be added.
How about all the free meals I pay for at the local schools??? Breakfast-—Lunch-—Dinner.
Don’t you mean the PC tyrants killed off the office Christmas party?
By IRS logic, they should put in coin operated restrooms.
I live in a fairly cheap cost of living area and the $8-10 meal we used to get at a moderate restaurant 10 years ago is now close to the $25 mark. That is also drinking iced tea.
They are doing this so they can give someone else a free lunch.
The problem is not the free lunch - these folks get all kinds of goodies, there was a time when folks could win a trip to ______, (some exotic location) as a sales prize - now they must pay the tax for the value of said trip. If companies give people things of value is it taxable - ask congress. Maybe if they had to pay a tax on consultant meals or pay a tax for PAC trips for golf these corp bennies to employees might be treated differently.
Thank you! This is in Ohio too.
Yes; it has long been the rule that all employer provided non-cash fringe benefits are considered taxable wages and subject to both income and payroll taxes unless they are otherwise explicitly exempted under IRS rules. For instance, the value of employer provided Group Term life insurance valued at and under 50k of the policy value is excluded from income as are “qualified” moving and relocation expenses, tuition reimbursement under a qualified section 127 plan; up to $5,250 of reimbursements per calendar year, some monthly personal cell phone reimbursements if the personal cell phone is used for business purposes, certain transportation benefits, Section 125 health benefit deductions and employee 401k deferrals, reimbursements of qualified business travel and meal and entertainment expenses, employer paid COBRA coverage for new or departing employees under some circumstances; all are tax exempt non-cash fringe benefits as the IRS explicitly excludes them. There are some employer provided fringe benefits that are always counted as imputed taxable income such as the portion of personal use mileage on a company provided vehicle, the imputed value of employer paid Group Term life over the 50k limit, company paid memberships to health clubs or country clubs, etc.
I and other payroll professionals always take the position that unless the IRS very explicitly exempts it, it is a taxable fringe benefit.
For instance; giving an individual employee a gift of anything not considered to be de minimums and not easily accounted for or explicitly exempted, something like a reward for exceptional job performance or prizes for meeting a deadline or exceeding sales goals, (gifts of for example, electronics, TV’s, iPods, trips, vacation, tickets to sporting events) the cost of which the employer knows and can easily determine the fair market value of and knows exactly who received them), they are and have long been considered to be wages (a non-cash bonuses) and are taxed as imputed income at the gift’s fair market value.
However the IRS allows exclusions of some employer provided gifts, those of tangible personal property from income that you give to an employee as an award for either length of service or safety achievement as long as the requirements are met; it doesn’t exceed the set monetary limits (you can’t give an employee a new car for achieving 10 years of service or working five years accident free for instance) and there is a written plan and that plan doesn’t favor only highly compensated employees.
But anytime the employer gives as a gift to the employee, cash or any cash equivalent, i.e. a gift card (whether that be a VISA gift card, a Target gift card, or any gift card for that matter); that is always considered taxable income – cash is cash and giving an employee cash is always considered to be taxable income (even if it would be otherwise excludible from income).
Last year at the company I work for, we exceeded our budgeted gross revenue and profit targets for the fiscal year and as a reward to our employees for all their hard work during the fiscal year, we provided to all employees (not just the highly compensated or the executives), an on-site catered “steak lunch” (several in fact as we also provided it for the workers on the 2nd and 3rd shifts in four different plants in two states). We brought in and paid a local caterer who provided grilled steak, grilled chicken, cooked to order on premises along with salads, side dishes and desserts and sodas and ice tea. And we do something similar every year at Christmas and occasionally provide luncheons to celebrate other company events and milestones, and when the weather is very hot and working conditions in the plant difficult, we provide free iced drinks; bottled water and Gatorade and freezie pops, etc.
But since, under the current IRS rules, these are “occasional” and accounting for it on an individual basis would be difficult if not impossible to account for (how would I in PR know or reasonably account for how much food any particular employee consumed at the Fiscal Year End celebration or the Christmas luncheon or at the other company provided luncheons or picnics during the year and determine the monetary value of what they consumed or even if they attended or not or whether or not they partook of the bottled water or Gaterade or how many of them they consumed) and since the value is de minimus and it is “occasional”, under current IRS rules, these can be excluded from income.
But every year my company at Christmas gives each and every employee a $30 gift card for a local grocery store and every year I remind management that the IRS considers gift cards to be cash equivalents and that it should be added as imputed income to the employee on their W-2 earnings (with at our option whether or not to “gross up” for taxes or not) and every year management tells me to ignore it. As a payroll professional, I know this is in violation of the current IRS rules but my company considers it a risk, one only to be found if there is ever an extensive IRS audit and is willing to take their chances on the penalties and interest possibly due should they ever be audited and it is found. (I have and keep my email paper trail just to CYA my own butt ; ).
But in IRS publication 15-B – Fringe Benefits, on employer premises free meals can be excluded from income if certain tests are met.
From the IRS publication 15-B – Fringe Benefits
Meals
This section discusses the exclusion rules that apply to de minimis meals and meals on your business premises.
De Minimis Meals
You can exclude any occasional meal or meal money you provide to an employee if it has so little value (taking into account how frequently you provide meals to your employees) that accounting for it would be unreasonable or administratively impracticable. The exclusion applies, for example, to the following items.
Coffee, doughnuts, or soft drinks.
Occasional meals or meal money provided to enable an employee to work overtime. However, the exclusion does not apply to meal money figured on the basis of hours worked.
Occasional parties or picnics for employees and their guests.
This exclusion also applies to meals you provide at an employer-operated eating facility for employees if the annual revenue from the facility equals or exceeds the direct costs of the facility. For this purpose, your revenue from providing a meal is considered equal to the facility's direct operating costs to provide that meal if its value can be excluded from an employee's wages as explained under Meals on Your Business Premises , later.
If food or beverages you furnish to employees qualify as a de minimis benefit, you can deduct their full cost. The 50% limit on deductions for the cost of meals does not apply. The deduction limit on meals is discussed in chapter 2 of Publication 535.
Employee. For this exclusion, treat any recipient of a de minimis meal as an employee.
Employer-operated eating facility for employees. An employer-operated eating facility for employees is an eating facility that meets all the following conditions.
You own or lease the facility.
You operate the facility. You are considered to operate the eating facility if you have a contract with another to operate it.
The facility is on or near your business premises.
You provide meals (food, drinks, and related services) at the facility during, or immediately before or after, the employee's workday.
Exclusion from wages. You can generally exclude the value of de minimis meals you provide to an employee from the employee's wages.
Exception for highly compensated employees. You cannot exclude from the wages of a highly compensated employee the value of a meal provided at an employer-operated eating facility that is not available on the same terms to one of the following groups.
All of your employees.
A group of employees defined under a reasonable classification you set up that does not favor highly compensated employees.
For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests.
The employee was a 5% owner at any time during the year or the preceding year.
The employee received more than $115,000 in pay for the preceding year.
You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year.
Meals on Your Business Premises
You can exclude the value of meals you furnish to an employee from the employee's wages if they meet the following tests.
They are furnished on your business premises.
They are furnished for your convenience.
This exclusion does not apply if you allow your employee to choose to receive additional pay instead of meals.
On your business premises. Generally, for this exclusion, the employee's place of work is your business premises.
For your convenience. Whether you furnish meals for your convenience as an employer depends on all the facts and circumstances. You furnish the meals to your employee for your convenience if you do this for a substantial business reason other than to provide the employee with additional pay. This is true even if a law or an employment contract provides that the meals are furnished as pay. However, a written statement that the meals are furnished for your convenience is not sufficient.
Meals excluded for all employees if excluded for more than half. If more than half of your employees who are furnished meals on your business premises are furnished the meals for your convenience, you can treat all meals you furnish to employees on your business premises as furnished for your convenience.
But what if we didn’t tax incomes? What if we only taxed retail goods and services at the point of sale? Well, then it doesn’t matter if XYZ Corp buys the meal for the employee, the company provides John Doe the cash to go get the meal, or John buys it out of his own pocket - the meal is simply taxed at the point of purchase by whomever is doing it, no accounting or filing by XYZ Corp or John Doe required.
Interesting concept, but one that is possibly rife for abuse.
Back in the early 70’s my dad got a job as the sole maintenance man for a large apartment complex. He was considered to be “salaried” and therefore was not paid for any overtime for any of the hours he worked over 40 hours per week nor anything extra for being on call 24-7 and having to respond to emergency calls 24-7 and if he wanted a weekend off, he’d have to arrange with another maintenance man at one of the other complexes to cover for him and also get permission from his supervisor at the management company which was very rare.
Today he would not meet the test of being an exempt employee (not subject to overtime) and his weekly salary was, even based on the minimum wage back then, less than minimum wage for a 40 hour week.
But then we were given an apartment to live in “rent free” but it wasn’t exactly “rent free” as part of the arrangement was that my mother had to man the rental office, which was attached to our apartment, 5 days a week, at least 6 hours every day, Monday through Friday and also 4 hours every Saturday. And for her services, she was paid nothing at all in terms of wages; her work supposedly went to offset the cost of our monthly rent. But looking back at this arrangement, my parents were getting screwed. If my mother had only been paid the minimum wage back then, the number of hours she actually put in times the minimum wage, far exceeded the value of our monthly rent. But since she was not being paid any wage, her earnings during those years didn’t count toward social security earnings nor were taxes withheld nor if my father and by extension she, was terminated or laid off, she would not be entitled to unemployment and to add insult to injury, the company added the value of the monthly rent for our apartment as “imputed income” on which my parents had to pay income taxes on.
It seems to me that moving and relocation expenses are different. It can easily be interpreted as the benefit of the employer.
> “Why is the IRS targeting Free Meals?”
Because there is no such thing as a free lunch?
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