How Supper Money Affects Your Business
As a business owner, you are often faced with navigating complex tax laws and regulations that can impact your bottom line. However, there is one benefit that you can take advantage of without discrimination: supper money. This fringe benefit allows you to provide tax-free meal money to yourself and your employees while also giving you a tax deduction for 50 percent of the meal money.
Understanding the Rules
The IRS defines “employee” for supper money purposes as anyone who receives meal money. This means you can take advantage of this benefit whether you operate as a sole proprietor, corporation, or partnership. However, it is recommended that you use this rule for personal meals only in situations where you provide the meal allowance to other employees who are working late with you.
The Deduction Process
Let’s say you and your employee are working overtime to complete a task. You take $56 and give your employee $56 for dinner. If you meet the four rules outlined by the IRS, then you as the employer can deduct half of the total amount ($112) as a business expense. This means the $56 provided for meals is tax-free for both you and your employee.
Changes Under the TCJA
The Tax Cuts and Jobs Act (TCJA) reduced the deduction for supper money from 100 percent to 50 percent for tax years 2018-2025. This means that only 50 percent of the meal money is deductible for those years. However, starting in 2026, the TCJA eliminates all tax deductions for supper money, making it a non-deductible expense for businesses.
Rules for Success
To ensure that your supper money payments qualify as a tax-free fringe benefit, you must meet the following four conditions:
1. Provide the benefit only occasionally
2. Pay no more than a reasonable amount
3. The meal enables the employee to work overtime
4. Do not calculate the benefit based on the number of hours worked
For example, providing a $30 allowance per hour of overtime is not allowed. Instead, a discretionary meal allowance, such as $56, is the preferred method of providing this benefit.
Consequences of Non-Compliance
If your supper money payments do not meet the four rules outlined by the IRS, they will be considered taxable compensation to the employee and subject to withholding and payroll taxes. This can lead to unhappy employees and additional costs for the employer in the form of payroll taxes.
Need Financial Services in Mechanicsville, VA?
Supper money can be a valuable benefit for business owners looking to provide tax-free meal money to themselves and their employees. By understanding the rules and ensuring compliance, you can take advantage of this benefit while also maximizing your tax deductions. If you need assistance with navigating the complexities of supper money payments and ensuring compliance with IRS rules, please don’t hesitate to reach out. I can provide guidance and support to help you maximize the benefits of this fringe benefit while staying in compliance with tax laws. Give me a call today!