Kill the Obama Lunch Tax: Why is the IRS targeting Free Meals?

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?

It seems to me that moving and relocation expenses are different. It can easily be interpreted as the benefit of the employer.

An employer can reimburse to a new employee (or for one transferring from one company location to another company location because of a job change that benefits the employer) but only if it meets the 50 mile test and the time test; tax free, but only for those very same expenses as would be tax deductible to the employee on their personal tax return if not reimbursed by the employer, i.e. the actual cost of moving their household goods from one home to another, their personal mileage driven at 23.5 per mile, the cost of a hotel stay (but not any meals) if the journey necessitates an overnight stay and temporary storage fees but only under certain circumstances.

Many employers also include in their relocation packages, especially for executives and highly compensated and or high demand and hard to staff positions, other reimbursements like reimbursing for “house hunting” trips for the employee and their spouse, including travel, hotel and meal expenses for house hunting, the time and expense of meeting with a real estate agent, temporary living arrangements i.e. renting a house or apartment including the rental deposit, in the new job area until a suitable house can be found and purchased, reimbursements for early lease termination if they were renting at their previous location, or the costs of temporarily renting their former home out until sold, the closing costs; taxes, fees, real estate broker commissions on selling their former home and or for purchasing a new home. All of these, if reimbursed by the employer are taxable income to the employee and wages subject to the employer for payroll taxes.

In my experience, moving and relocation packages take one of two forms.

One being that all qualified IRS tax exempt moving expenses are either reimbursed to the employee with substantiation of the expenses or are paid directly to a third party, i.e. a moving company, again with substantiation and it is taxable income neutral to the employee, i.e. not reported as box 1 W-2 taxable income. Any other non-qualified, i.e., those taxable moving and relocation expense that are reimbursed to the employee as taxable income or if paid to a third party, as imputed income but they are often “grossed up” as to be taxable neutral or grossed up at a flat 30% gross up rate.

The other form of relocation packages which in my experience are becoming more and more common is to pay the new employee a one time, lump sum moving and relocation bonus (factoring in the approximate moving cost and including a gross up estimate) at their time of hire, on their first paycheck. In that case 100% of the bonus is included as taxable income and it is incumbent on the employee to keep accurate records of their deductible moving expenses and wait to get a refund on their tax return.

Back when 10 grand or so was considered a good, livable wage, one of the great perks was a ‘free’ Company Pickup.
The ‘real’ reason it was given was so I could make emergency calls on nights and weekends and allowed me to be ‘on call’ 24/7.
Of course I used it as my own vehicle and all my related expenses - taxes, insurance, fuel etc - were provided.
Think it was when RR took over and the FICA payment went up to 100 thou that all these little perks were taken away and/or taxed (well supposed to be) as income.

MAYBE one of the reasons the FED wants to claim these goodies as income is because the COMPANY claims them as expenses?

Remember when the interest we paid on Credit Cards was considered deductible (Of course not EVERYONE had a CC).

I also think that on ‘written off’ debts the person that ‘benefited’ from the ‘write off’ is now liable for taxes on the amount that was ‘gifted’ them.

Too bad WE can’t write the rules OR at least have Congress follow the Draconian rules/laws they stick us ‘peasants’ with.

Remember the great money laundering outfit called the ‘House Post Office’?

That might be a little high, but it’s not outrageous. Try to find more than a “recession buster” “limited time” lunch at Applebee’s or TGIF or Red Robin or Outback or any of those kinds of places or even Denny’s these days for less than ten bucks, plus a soda, there’s two or three more, tax and tip and that’s $17 or $18 for a fancy burger and fries and their special cole slaw or fish & chips or a big Cobb Salad. And that’s the level of cuisine you’ll see at these Silicon Valley places. Add a dessert, ‘cuz it’s right there for the taking at the end of the lunch line, and there’s easily a twenty-plus-dollar restaurant meal.

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