Are Meal Reimbursements From an Employer Taxable?

A meal reimbursement is a payment from an employer to cover the cost of a meal an employee paid for out-of-pocket. Whether this payment is considered part of the employee’s taxable income depends on a specific set of rules established by the Internal Revenue Service (IRS). The taxability hinges on whether the expense was incurred for business purposes and how it is documented and reported.

The Accountable Plan Standard

The tax treatment of a meal reimbursement is primarily determined by whether it falls under what the IRS calls an “accountable plan.” If an employer’s reimbursement policy meets the criteria of an accountable plan, the payments are not considered wages and are excluded from an employee’s gross income. This means no federal income tax or employment taxes, like Social Security and Medicare, are withheld from the reimbursement.

To qualify as an accountable plan, an arrangement must satisfy three specific requirements. First, the expense must have a business connection. This means the meal expense must be an ordinary and necessary cost associated with performing job duties, such as a meal while traveling for work or entertaining a client.

The second condition is that the employee must adequately substantiate the expenses to the employer within a reasonable period. This involves providing documentation that details the amount, time, place, and business purpose of the meal. Finally, the plan must require the employee to return any excess reimbursement or allowance within a reasonable time frame. For instance, if an employee is given a $100 advance for a business trip but only spends $80 on qualifying meals, the remaining $20 must be returned to the employer.

Common Non-Taxable Meal Reimbursements

The most frequent example of a non-taxable reimbursement involves business travel. When an employee travels for business away from their “tax home” overnight, the cost of their meals is generally not taxable when reimbursed. This “away from home” rule requires that the business trip be long enough to necessitate sleep or rest.

Another category is meals provided for the “convenience of the employer.” This rule applies when an employer furnishes a meal on its business premises for a substantial business reason. For example, a hospital requiring emergency room staff to eat on-site to be available for immediate crises is providing a meal for its convenience. Similarly, if a company requires employees to attend a mandatory lunch meeting to discuss a time-sensitive project, the meal’s value is typically not taxable.

A third category of non-taxable meals falls under the “de minimis” benefit rule. This applies to small, occasional benefits where the value is so minimal that accounting for it would be unreasonable or impractical. Common examples include coffee and donuts provided during a morning meeting or an occasional group lunch for employees. The IRS does not assign a specific dollar amount to a de minimis meal, but frequency and value are considered.

When Meal Reimbursements Become Taxable

When a reimbursement arrangement fails to meet the requirements of an accountable plan, it is classified as a “non-accountable plan.” Under a non-accountable plan, all reimbursements for meals are fully taxable to the employee. These payments are treated as supplemental wages, included in the employee’s income on Form W-2, and are subject to federal income tax withholding, Social Security, and Medicare taxes.

The most common example of a non-accountable plan is a flat meal allowance provided to employees without any requirement for substantiation. For instance, if a company gives every employee a $200 monthly stipend for meals with no questions asked, that entire amount is taxable income.

An arrangement can also fail if it does not require the return of excess reimbursements. If an employee receives a $500 travel advance for meals but only substantiates $400 in expenses and is allowed to keep the extra $100, the entire $500 reimbursement may be deemed taxable. The failure to return the excess amount can taint the entire arrangement, causing it to be reclassified as a non-accountable plan.

Substantiation and Record-Keeping for Employees

To ensure meal reimbursements remain non-taxable under an accountable plan, employees must provide the employer with specific, detailed information in a timely manner. This is generally considered to be within 60 days of incurring the expense.

For each meal expense, the employee must document several pieces of information, including:

• The exact amount of the expense, which is typically proven with a receipt
• The date and time the expense was incurred
• The name and location of the restaurant or establishment
• A clear description of the business purpose of the meal, for example, “Lunch meeting to discuss Q3 sales targets”

If the meal involved entertaining clients, customers, or other business associates, the record-keeping requirements are more detailed. The employee must document the names of the individuals who were at the meal and their business relationship. This could include their titles, companies, and the specific business subject discussed before, during, or after the meal.