2026 Meals & Entertainment Deduction Changes: What Employers Need to Know

Effective January 1, 2026, the federal tax treatment of many employer-provided meals changed materially. A provision that was scheduled under the Tax Cuts and Jobs Act (TCJA) and later refined through the One Big Beautiful Bill Act (OBBBA) now limits, and in many cases eliminates, deductions that employers have historically taken for meals provided on-premises or for the employer’s convenience.

If your organization provides meals to employees, through an on-site cafeteria, during overtime shifts, or as part of routine workplace benefits, this update affects both tax cost and policy design. Below is a practical guide to what changed, what remains deductible, and what employers should do now.

Key Details

• Employer convenience meals and de minimis food are now 0% deductible: On-site meals, cafeteria subsidies, breakroom snacks, coffee, and overtime meals can no longer be deducted starting in 2026.
  
• Business meals with clients remain 50% deductible: Proper documentation is required
• Entertainment expenses remain non-deductible: This has been the rule since 2018 under the TCJA
• Some meals qualify for 100% deduction: Including employee recreation events, meals treated as taxable compensation, and certain industry-specific exceptions

What You Can No Longer Deduct IN 2026

Employer Convenience Meals and De Minimis Food Benefits

Beginning in 2026, IRC Section 274(o) generally disallows deductions for meals provided for the convenience of the employer and expenses for operating an employer eating facility. These items were 50% deductible through 2025 and are now 0%.

Separately, small everyday food benefits that previously qualified as excludable de minimis fringe benefits under Section 132(e), such as breakroom coffee, snacks, and occasional overtime meals, also lose their deductibility.

While the exclusion from employee income under Section 132(e) may still apply (meaning employees are not taxed on the coffee and snacks), the employer can no longer deduct the cost. This is an important distinction: providing the benefit is still tax-free to the employee, but it now comes at full after-tax cost to the employer.

In practice, the expenses affected include:

• Meals provided to keep employees available during extended shifts or operational demands
• Employer-operated cafeterias or subsidized eating facilities, including the costs of running the facility
• Breakroom snacks, coffee service, and similar everyday food items
• Occasional overtime or late-shift meals
• Other employer-provided meal programs designed primarily as an internal employee benefit rather than a client-facing business meal

Why This Matters for Your Business

This change does not prevent you from providing meals. It means the tax subsidy that offset part of the cost is gone.

If your company has meaningful spend on cafeteria operations, shift meals, or routine food programs, the after-tax cost of those benefits increases in 2026. For a company spending $200,000 annually on cafeteria subsidies, losing the deduction could mean roughly $42,000–$50,000 in additional federal tax cost depending on your rate.

2026 Rules: What Remains Deductible

100% Deductible Meals

Certain meal expenses can still be fully deductible under defined exceptions, often referenced under IRC Section 274(e) categories. Examples commonly relied on include:

• Meals treated as taxable compensation to employees, included in wages and reported, as applicable.

• Employee recreation or social events, for example holiday parties, that primarily benefit non-highly compensated employees.

• Meals provided to the general public for promotional/marketing purposes when structured to meet the exception.

• Meals sold to customers in a bona fide transaction for full consideration, and related cost treatment.

• Meals treated as income to nonemployees, for example reported on Forms 1099 where applicable.

Industry-Specific Exceptions

OBBBA created limited relief from the Section 274(o) disallowance for certain industries, and other long-standing specialized rules may continue to apply in narrower contexts. In practice, employers most often see these come up in:

• Restaurants and catering businesses where employee meals may qualify under the “sold to customers” exception, depending on how they are structured. Hospitality and restaurant operators should review their specific arrangements.
• Fishing industry relief for qualifying vessels and certain processing facilities under the OBBBA changes.
• Commercial vessel and oil and gas operations where meal treatment may differ from a standard office setting. Energy companies should confirm applicability based on their specific facts.

50% Deductible Meals

Under IRC Section 274(n)(1), most business-related meal expenses are deductible only up to 50% of the cost. In general, these are meals that are:

• Directly connected to conducting business
• Not internal “convenience” meals provided to employees onsite
• Not entertainment

Common examples include:

• Business meals with clients or prospects (as long as an employee or business representative is present and the meal is not bundled as part of an entertainment event)
• Meals incurred while traveling away from your tax home overnight for business
• Meals provided at conventions or professional meetings (such as receptions, business luncheons, or similar events)

Documentation Requirements for 50% Meals

A 50% deduction is only as strong as the records supporting it. For every business meal, your documentation should capture:

• Amount, date, and location of the meal
• Business purpose — why the meal occurred
• Attendees and relationships — names and their connection to your business

Receipts are generally required for expenses of $75 or more. Itemized documentation becomes especially important when meals occur alongside entertainment, so food and beverage charges can be separated and the meal portion preserved. Without complete records, even a legitimate business meal can be disallowed on audit.

Entertainment Expenses: Still Non-Deductible

Entertainment expenses remain non-deductible under IRC Section 274(a), even if there is a clear business purpose or business discussion during the event. This treatment has been in place since the TCJA changes took effect in 2018, and it does not change in 2026. “Entertainment” includes:

• Tickets to sporting events, theater, or concerts
• Golf outings and other recreational activities
• Leased suites or stadium seating
• Costs tied to entertainment facilities (including rent, depreciation, and utilities)
• Incidental costs at the venue, cover charges, tips, and parking, when they are part of the entertainment event

Separating Meals from Entertainment

Meals may still be deductible (typically at 50%) when they occur in connection with entertainment, but only if the food and beverage costs are clearly separated. Under Treasury Regulation Section 1.274-11, you generally need either:

1. An itemized receipt or invoice that states food and beverage charges separately, or
2. A separate purchase of the meal apart from the entertainment activity

If the charges are bundled with no reasonable breakout, the IRS can treat the entire amount as non-deductible entertainment. For client events, the safest practice is to request itemized billing upfront and train employees to submit the documentation in a way that preserves the meal deduction where allowed.

Club Memberships

Membership dues for clubs organized for business, pleasure, recreation, or social purposes are generally not deductible. This includes:

• Country clubs
• Golf and athletic clubs
• Airline clubs
• Similar organizations, regardless of whether the membership is used to develop business relationships

By contrast, dues paid to certain organizations are typically deductible when they are primarily business or professional in nature and not structured as entertainment:

• Chambers of commerce and business leagues
• Professional organizations (such as bar or medical associations)
• Trade associations and real estate boards
• Civic or public service organizations

Specific Scenarios: What’s Deductible?

The table below is a quick reference. It assumes a standard employer in a typical office environment and the general federal rules under IRC Section 274. The percentage shown is the maximum deduction available when the transaction is properly documented and classified.

Key reminders:

• Meals vs. entertainment: If an invoice bundles entertainment and food, the meal portion is deductible only if food and beverage are separately stated or purchased separately. If bundled with no breakout, the entire amount can become non-deductible.
• Documentation drives the result: Apply the substantiation checklist above for any 50% meal.
• Exceptions exist but must be applied intentionally: Some items shown as 0% can become 100% deductible if properly structured (for example, treated as taxable wages). Don’t assume, set a policy and coding method.

Action Steps for Employers

With the 2026 rules now in effect, the goal is simple: prevent misclassification, protect deductibility where it still exists, and avoid surprises at year-end. The most effective approach is to tighten policy, accounting structure, and employee behavior at the point where expenses are incurred, not during tax prep.

1. Update Your Expense Policy and Accounting Structure

• Revise your expense reimbursement policy so employees know which meal types are non-deductible versus still eligible for 50% or 100% treatment.
• Set up your chart of accounts to match tax categories, with separate buckets for 100%, 50%, and 0% meals, so expenses are booked correctly from the start.
• Standardize documentation requirements for business meals: date, location, business purpose, attendees and relationships, and receipts for expenses of $75 or more. Provide employees a simple template of a compliant entry.

2. Evaluate Your Meal Programs

• Assess the after-tax cost. If you provide meals as a retention or productivity benefit, evaluate whether the program still makes sense at its new after-tax cost.
• Understand the restructuring option and its trade-offs. In theory, replacing a non-deductible meal benefit with a taxable meal allowance or stipend treated as compensation preserves employer deductibility while changing payroll treatment.
  In practice, most employers choose not to go this route. Converting a benefit employees currently receive tax-free into taxable income can create friction, feel like a pay cut, and undermine the retention and morale value the program was designed to deliver. For many organizations, the employee relations cost outweighs the tax savings. If you do consider this approach, model the numbers carefully and think through how the change will be communicated and received.
• Review cafeteria operations. If you operate an on-site cafeteria, evaluate alternatives such as pricing meals at fair market value or adjusting subsidies to determine whether a policy change is warranted.

3. Train Your Team

• Train employees on what must be included when submitting meal expenses. Provide a simple “good example” template of a compliant entry.
• Train managers and finance approvers to identify common issues, especially miscategorised internal meals and meals tied to entertainment, and to send items back when documentation is incomplete.

4. Quantify the Impact and Plan Ahead

• Before year-end, estimate the dollar impact of expenses that moved to 0% deductible (such as convenience meals and cafeteria subsidies). This helps quantify the increase in after-tax cost and supports informed budgeting.
• Update department budgets and benefit planning so the organization is not surprised by higher effective costs in 2026.

Contact WhippleWood

The 2026 changes to meal deductions represent a meaningful shift for employers. Knowing which expenses are still deductible, and setting up the right documentation and expense tracking, can help you stay compliant while making intentional decisions about employee benefits. If you’d like help assessing your current meal programs, updating expense policies, or building a clean tracking structure for 2026 reporting, WhippleWood can help you map the rules to your specific facts and implement a practical approach.