No Such Thing As a Tax-Free Lunch At Google? 631
theodp writes "In search of the best corporate cafeteria in the world, Gourmet Live's Tanya Steel visited the Googleplex, where she found Petaluma chicken cacciatore, porcini-encrusted grass-fed beef, whole-wheat spaghetti pomodoro, and Parmesan-creamed onions on the menu in one of the search giant's 25 cafes. So, must all good things come to an end? The WSJ's Mark Maremont reports that it's debatable whether Silicon Valley's daily fringe-benefit meals are taxable, and the issue is now on the IRS's radar. 'What would a food tax on Google's meals look like for the average employee?' Maremont asks. 'Assuming a fair-market value of between $8 and $10 per meal, a Googler chowing down two squares a day could get dinged for taxes on an extra $4,000 to $5,000 a year.' That'd be just fine with UF tax-law Prof. Martin J. McMahon. 'I buy my lunch with after-tax dollars,' said McMahon. 'And I have to pay taxes to support free meals for those Google employees.'"
Here in Canada ... (Score:5, Informative)
We (as a country, and yes, I'll speak for my country here) tend to tax things that employees receive as part of doing their job. Like, income. Company car usage on personal business. Certain types of business accommodation perks.
Unless google is willing to open their cafeteria to the world, getting "free" meals as part of your job is, well, part of your job. I think most people can agree that the US tax system has a few loopholes - but why is it crazy to expect people to pay taxes on their income?
Re:Tax funded lunches? (Score:3, Informative)
The argument is that because Google employers are not buying their lunch, then they're not contributing to the city/county/state tax revenue pool.
"Huh?" you say.
If Google's kitchens sold those lunches to the employees then the employees would pay tax on the purchase of those lunches.
Thus by not requiring people to purchase the food and thus pay tax on the purchase, they're depriving the city/county/state of sales tax.
From an IRS perspective, Google is effectively providing people a "fringe benefit." The benefit here is food. The food costs Google some amount of money to provide or prepare so it obviously isn't worth nothing. Thus the IRS is within its rights to argue that Google is providing people with a "fringe benefit."
Re:No you don't. (Score:5, Informative)
no, we're not. business expenses dont work like that for companies, and not on that large a scale.
the rules fro business expenses are quite stringent and clear cut. if that sort of thing could qualify, all goods and services would be dramatically cheaper because EVERYTHING is a business expense, and they would be writing EVERYTHING off.
doesnt work like that; free lunch is an expense, but not a deductible one.
"Section 162(a) of the Internal Revenue Code is the deduction provision for business or trade expenses. In order to be a trade or business expense and qualify for a deduction, it must satisfy 5 elements in addition to qualifying as an expense. It must be
(1) ordinary and (2) necessary (Welch v. Helvering, 290 U.S. 111, defines this as necessary for the development of the business at least in that they were appropriate and helpful). Expenses paid to preserve one’s reputation do not appear to qualify (Welch v. Helvering). In addition, it must be (3) paid or incurred during the taxable year. (4) It must be paid in carrying on (meaning not prior to the start of a business or in creating it) (5) a trade or business activity. To qualify as a trade or business activity, it must be continuous and regular, and profit must be the primary motive"
So providing free lunch (or really most employee benefits) at work is disqualified from deductibility just by the first two:
1- lunch is ordinary, but providing free lunch to employees is not ordinary. they could just buy it themselves
2- not necessary. again, can buy it themselves. and while labor laws say you much provide a lunch break, it doesnt say you much provide the lunch
Essentiall the question is can the business function without it? If yes, its not deductible. If no, then it is. An independent truck driver who pays for his own gas (diesel): the diesel qualifies for deduction. The same truck driver who outfits his truck with an expanded cab with a mattress and wants to write off the installation: Most likely not (debateable; some agents I've talked to would let it go as it saves him money on long hauls, but most agree his business can function without it cause he can just sleep in a motel..which ironically would itself qualify for deduction).
Free lunch is a benefit to the employees that helps with morale and retention.
But while it may be an expense to the company, it is not a deductible one.
"Income from all sources" (Score:4, Informative)
The rules are clear if you are working on an oil rig or a deep-diving submersible --- any site so remote and secured that only your employer can keep you fed and housed and the costs are astronomical.
The five-star buffet in Mountain View?
That is taxable as income.
This is not a new issue. Although the concept of tech companies offering their employees gourmet catered dining is relatively recent, restaurants, hotels, bars, and other hospitality businesses have offered their staffs free meals since time immemorial.
In those cases, the US federal tax code allows a business to exclude the cost of meals from its employees' income only as long as the meals are eaten on the employer's business premises and they are provided "for the employer's convenience."
A company like Google might have a hard time proving the latter clause. A recent job posting for a "Food Experience Design Manager" would seem to suggest that mealtimes at the Chocolate Factory's over 120 cafes are designed as much for its employees' enjoyment as to bolster the bottom line:
As the Global Service and Experience Design Manager, you think about everything that goes into how Googlers interact with food. From our ever-popular micro-kitchens to multi-course meals at cafes, the design, layout and experience of eating at Google should promote healthy habits and social serendipity for Googlers. Our food venues need to support the healthiest, happiest workforce on the planet.
Similarly, Yahoo! started offering its employees free food last August, with a spokesperson telling El Reg that the move was "part of how Yahoo! looks after its talent." But meals offered as a recruitment or retention tactic don't count as being ''for the employer's convenience'' either, according to experts.
Tax man to take a bite of tech employees' free meals? [theregister.co.uk]
Re:Here in Canada ... (Score:5, Informative)
"Should I be paying taxes on what those items would cost me if I had to pay for them?"
Yes.
Deminimis rules apply, but you are generally taxed-as-income on the compensation you receive in exchange for your labor.
That includes cash wages, health care benefits paid by your employer, 401k matching, car allowance if you are not driving miles for work purposes, $1,000/year worth of gym membership, or $5,000/year of food.
Would you do the job for only popcorn? Of course not. Would I take a lower wage if my employer paid my mortgage? Yes, and I should be taxed on that. Somewhere in between those extremes are what IRS Revenue Rulings define. And in this case, the IRS is taking a look at the changes in how companies provide food to employees, and is redefining the rules of what counts an "income".
Re:Here in Canada ... (Score:4, Informative)
In Canada, the rule is that if the employees don't pay a reasonable charge for a meal then it's a taxable benefit: Subsidized meals [cra-arc.gc.ca]
You don't pay EI premiums (employment insurance) on it but you deduct pay income tax and CPP premiums (Canada Pension Plan). If they only sporadically work overtime then providing meals for those times isn't taxable.
Re:No you don't. (Score:5, Informative)
Tax rates affect behavior.
Re:slow news day? (Score:5, Informative)
As a Googler, I can tell you we ARE taxed for meals, to the tune of $4,650.00 in 2012. The company then pays a 'gross up' to make it a non-event for the employees. So all this complaining about 'free lunches' is entirely off-track, and this Professor of Law has demonstrated he doesn't know how to do basic research before talking.
Re:slow news day? (Score:5, Informative)
I have the option of eating at my state university's cafeteria, but I get charged for the privilege at least as much as the students do.
Re:slow news day? (Score:5, Informative)
As a Googler, I can tell you we ARE taxed for meals, to the tune of $4,650.00 in 2012. The company then pays a 'gross up' to make it a non-event for the employees. So all this complaining about 'free lunches' is entirely off-track, and this Professor of Law has demonstrated he doesn't know how to do basic research before talking.
I can confirm this. My understanding was that the IRS negotiated an agreement which required taxes to be paid on meals at the smaller campuses, because on larger campuses the time it would take for Googlers to go off-campus to eat was accepted by the IRS as sufficient business value to justify it as a business expense. But that may be incorrect, or maybe the IRS changed its mind later.
In any case, I work in the Boulder office and I do pay income taxes on my meals, and Google then offsets it with a grossed-up payment so the tax doesn't impact my income.