IRS says no to free Silicon Valley meals

Silicon Valley companies commonly offer employees free meals featuring everything from stuffed quail and crispy pork carnitas to mussels with saffron and fennel. The gourmet fare is one of the standard perks that tech companies offer to attract new employees and keep them near the office innovating their way to fun and profit.

As everyone knows, of course, there's no such thing as a free lunch -- at least not as far as the IRS is concerned. The tax agency is starting to ask questions about whether those tech company meals cross the line from employee perk into a form of pay.

The IRS is now calling these meals a taxable fringe benefit, The Wall Street Journal reports. It's been wary of the free cafeteria food for a while, but is now starting to intensify its scrutiny. The agency, along with the U.S. Treasury Department, has added the taxation of these meals to their annual list of top tax priorities for the next year, the paper reports. The two agencies say they will offer "guidance" on the issue.

It's virtually impossible, though, to hunt down each employee's food intake and tax that person for the value of the meals consumed. So what the IRS has done in the past is collect the taxes from employers instead.

How much is at stake here? A Journal analysis figures that if a meal has a fair-market value of between $8 and $10, a Google (GOOG) employee eating two meals a day could be liable for taxes on an extra $4,000 to $5,000 a year. Facebook (FB) and Twitter (TWTR) also offer free meals to workers.

Here are three reasons critics say companies should pay taxes on employee meals:

It gives some employers an unfair advantage. Companies can lure employees with promises of free food, leaving it much harder for others to compete. This is one reason Yahoo (YHOO) decided to stop charging workers for its cafeteria food in 2012.

It hurts all taxpayers. If companies are skipping taxes for the meals, that leaves fewer tax dollars to pay for government services and other programs. So in a way, taxpayers are subsidizing free cafeteria meals for some of the most profitable companies on earth.

Free food is tantamount to employee pay. Giving employees food means they don't have to shell out for lunch on their own. As a result, the meals can be considered part of a broad compensation package.

For others, though, taxing employee meals is a rotten idea. Here are three reasons people say the food should not be taxed:

It's part of tech culture. Free food, massages, shuttle bus rides and yoga classes are crucial to the hyper-productive environment in Silicon Valley. Stifling those perks could hurt innovation.

Where do you draw the line? So what's next, taxing companies that offer free coffee to workers? What about those little packets of Splenda? While we're at it, what about toilet paper?

It benefits the company as much as the employees. There is a "convenience of the employer" test that the meals could fall under, The Journal reports. If they keep employees working longer -- and keep corporate secrets from being discussed off-campus -- then that's a big benefit for the company as well.

  • Kim Peterson

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