Meals Deduction Changes for 2026 Might Require Employer Action

Changes to the meals deduction that became effective January 1, 2026, might require taxpayers to immediately begin identifying and tracking a separate category of meal costs. The changes are effective for costs paid or incurred after December 31, 2025, and generally disallow deductions for an employer-operated eating facility and meals provided to an employee for the convenience of the employer.

Determining whether meals are considered provided at the convenience of the employer or occur at an employer-operated facility is highly fact-specific. The rules are complicated, and taxpayers could be incurring nondeductible meal costs in 2026 or missing allowable deductions because they misunderstand the new regime (i.e., most employers’ breakroom/kitchen drinks and snacks are still 50% deductible).

Changes to the Rules

The Tax Cuts and Jobs Act (TCJA) made several changes to the deductions for meals and entertainment, including two changes that were effective beginning in 2018:

• Eliminating the deduction for entertainment expenses, which were previously 50% deductible if directly related to the taxpayer’s trade or business or directly preceding or following a substantial and bona fide business discussion. 
• Eliminating an exception to the 50% limit on the meals deduction for de minimis fringe benefits under Section 132(e), which were previously 100% deductible (rather than 50%) if occurring in eligible employer-operated eating facilities. 

The TCJA also included a delayed change under new Section 274(o) for amounts paid or incurred after December 31, 2025. The change now disallows a deduction for:

• Any expense for the operation of an employer-operated facility described in Section 132(e)(2) and for food or beverages associated with that facility (before 2018, this category was eligible for the preferential treatment described above).
• Any expense for meals provided to an employee for the convenience of the employer, as described in Section 119(a).

The One Big Beautiful Bill Act further amended Section 274(o) to provide exceptions from the above disallowances, which preserve deductions for employer-provided meals on some commercial or fishing vessels, oil and gas platforms, fish processing facilities, and meals sold by taxpayers in a bona fide transaction for adequate and full consideration. (The regulations allow restaurants  to deduct 100% of the cost of meals provided to food service employees before, during, or after their shifts.) (See a related Alert summarizing upcoming Treasury guidance projects.)

Employer-Operated Facilities

As stated above, taxpayers can no longer deduct any expense for the operation of an eating facility described in Section 132(e)(2) or for food or beverages associated with such a facility. 

Section 132(e)(2) provides that the operation of an employer eating facility for employees is a de minimis fringe benefit that can be excluded from employee income. The facility must be located on or near the employer’s business premises and the facility must generate enough revenue to cover its operating costs and cannot discriminate in favor of highly compensated employees. 

Before the enactment of the TCJA, meal costs associated with those facilities received preferential treatment under Section 274, which exempted the expenses from the 50% limit on other meal deductions. The TCJA removed that exception beginning in 2018 and now disallows a deduction altogether for those expenses if paid or incurred after 2025. 

Meals Provided at the Convenience of the Employer

Section 274(o) now also denies a deduction for expenses paid or incurred after 2025 for meals provided to an employee for the convenience of the employer, as described in Section 119(a).

Section 119(a) allows employers to exclude from employee income any meals provided to the employee for the convenience of the employer if the meals are furnished on the employer’s business premise. The term “convenience of the employer” generally means for a substantial noncompensatory business reason, and that determination is made based on facts and circumstances.