Tax treatment of employer-provided meals and lodging
Gross income generally includes the fair market value (FMV) of meals and lodging received from one’s employer. However, Sec. 119 allows an employer to exclude from gross income the value of meals and lodging received from an employer under certain circumstances. In addition, some or all of the value of meals or lodging may be excluded from income under other exclusion provisions.
For an employee to exclude the value of meals received from an employer from gross income under the general exclusion in Sec. 119(a), the employer must furnish the meals on the employer’s business premises. The “employer’s business premises” generally means the employee’s place of employment. The business premises include the place where the employee performs significant duties of where the employer conducts a significant portion of its business. The meals must also be for the convenience of the employer, not the convenience of the employee.
Under the convenience-of-the-employer condition, an employee may exclude from gross income the value of the meals provided free by an employer only if the employer does so for a substantial noncompensatory business reason.
Where an employer requires an employee to accept lodging on the employer’s business premises as a condition of employment, Regs. Sec. 1.119-1(a)(2) deems any meal the employer provides free to the employee at the business premises to be for a substantial noncompensatory reason.
Meals before and after work
With some exceptions, Regs. Sec. 1.119-1(a)(2) treats meals provided before or after work as not provided for a substantial noncompensatory reason. Thus, the employee must include the value of those meals in gross income. Meals provided to restaurant employees are a common exception. A restaurant employee may exclude from gross income the value of free or discounted meals consumed immediately before work, during work or immediately after work.
If the employer would have provided a meal to an employee during working hours for a substantial noncompensatory business reason, but work duties prevented the employee from eating, the employee may exclude from gross income the value of a meal provided by the employer immediately after working hours.
Conditions for exclusion of lodging by an employee
When an employer provides housing or lodging for an employee, the employee may be able to exclude the value of the lodging from gross income. The lodging must meet three tests under Regs. Sec. 1.119-1(b): (1) The lodging must be on the employer’s business premises; (2) the employer must provide the lodging for the employer’s convenience rather than for the employee’s convenience; and (3) the employer must require the employee to accept the lodging as a condition of employment. Thus, the employee must need to live in the lodging to be able to perform the duties of the employment.