Effective January 1, 2026, expenses for meals provided for the convenience of the employer and employer-operated eating facilities will no longer be deductible. Businesses should be monitoring potential changes to Internal Revenue Code (IRC) Section274(o) while also planning for the major changes taking effect in 2026.
Background
Historically, IRC §274 governs the deductibility of meals, entertainment, travel, and certain fringe benefits. These rules have allowed for a 50% deduction for business meals and employer-provided food. Beginning January 1, 2026, high-impact changes are in effect for employers regarding this historical norm. Section 274(o) was introduced in 2017 with the Tax Cuts and Jobs Act. The new disallowance under §274(o) applies to two main categories: 1) meals provided for the convenience of the employer and 2) employer-operated eating facilities. The One Big Beautiful Bill Act (OBBBA or OB3) did add in a couple of minor exceptions to §274(o); establishments that provide meals to customers, such as restaurants, are permitted a 100% deduction under “Treasury Regulation § 274-12(c)(2)(v)(A),” and employers who provide expenses for meals and beverages on either fishing boats or fish processing facilities are allowed a 100% deduction under IRC 274(n)(2)(C).
Insight: The disallowance took place effective January 1, 2026, meaning this would apply midyear for fiscal year taxpayers.
Scope of §274(o) Disallowance
Meals Provided for the Convenience of the Employer
Meals for the convenience of the employer are meals described in §119(a), which have historically allowed the employee to exclude the value from their income if the meals were consumed at the employer’s business location for non-compensatory business reasons. What is key here is the phrase in §274(o): “For the convenience of the employer.” It mirrors the language in §119(a) and thus serves as a critical piece in the definition. Examples of non-compensatory business reasons include short meal periods, emergency availability, remote or isolated locations, on-call requirements, and business continuity needs. Under the new regime, these meals remain excludable from the employee’s income under §119(a), but employers will not be permitted a deduction.
Employer-Operated Eating Facilities
The other primary category §274(o) applies to is the deductibility of employer-operated eating facilities under §132(e)(2). Employer-operating eating facilities are defined as those owned or leased by the employer, operated by the employer or third party, located on or near the business premises, and serving employees during their workday. Under the new regime, these costs to operate these employer-operated facilities will no longer be deductible even if they meet the §132(e)(2) definition.
Insight: A common question of employers is whether ordering meals from a restaurant for employees at the office is still 50% deductible. Under current law, the 50% deduction is unavailable under §274(o) if employers exclude the value of meals from employee income under the §119(a) rules, regardless of the source of the employer-provided meals.
Actions Steps
As you can imagine, IRC §274(o) is going to have major implications for employers that either have employer-operated eating facilities or provide meals for their employees on site. Planning might include the following:
- Review your current meal policy
- Quantify historical costs and deductions to understand the financial impact
- Re-evaluate meal strategies
- Consider alternatives like taxable meal stipends or employee reimbursement
- Understand what remains deductible
- Business meals with clients and travel meals remain 50% deductible
- Social or recreational events, e.g., holiday parties, remain 100% deductible under §274(e)
- Continue to monitor potential changes to the current scope of §274(o) in any potential legislation
Insight: Each business is unique and might have different policies that could yield different results, and as such, we recommend contacting a trusted professional at Forvis Mazars for assistance.
Impacts of §274(o): Comparative View of 2025 vs. 2026
| Item | 2025 Treatment | 2026 Treatment | Reference |
|---|---|---|---|
| Tickets to Entertainment Events | Nondeductible. | Nondeductible. | IRC 274(a)(1) |
| Entertainment | Nondeductible. | Nondeductible. | IRC 274(a)(1) |
| Employee Travel Meals | In general, subject to 50% limitation as long as not lavish or extravagant. Expenses under a reimbursement or other expense allowance arrangement are 100% deductible. | In general, subject to 50% limitation as long as not lavish or extravagant. Expenses under a reimbursement or other expense allowance arrangement are 100% deductible. | IRC 162(a)(2); IRC 274(e)(3); IRC 274(n) |
| Travel Expenses Other Than Meals | Deduction allowed for ordinary and necessary business expenses while traveling away from home in the pursuit of business or in connection with the production of income. Includes travel expenses not away from home as long as they are not commuting costs. | Deduction allowed for ordinary and necessary business expenses while traveling away from home in the pursuit of business or in connection with the production of income. Includes travel expenses not away from home as long as they are not commuting costs. | IRC 162(a)(2); IRC 212(1) |
| Transportation – Commuting | Nondeductible, except as provided for the safety of the employee. Exception for qualified bicycle commuting reimbursement after December 31, 2017 and before January 1, 2026. | Nondeductible. | IRC 274(a)(4); 274(l) |
| Employer’s Cost of Employer-Operated Eating Facilities | Costs incurred after December 31, 2017 and before January 1, 2026 are subject to 50% limitation. | Costs incurred after December 31, 2025 are nondeductible to the extent excluded from employee income. | IRC 274(o)(1); IRC 132(e)(2) |
| Meals Provided for Employer’s Convenience on Employer’s Premises | Costs incurred after December 31, 2017 and before January 1, 2026 are subject to 50% limitation. | Costs incurred after December 31, 2025 are nondeductible to the extent excluded from employee income. | IRC 274(o)(2); IRC 119 |
| Beverages & Snacks Available on Premises to All Employees | Costs incurred after December 31, 2017 and before January 1, 2026 are subject to 50% limitation. | Costs incurred after December 31, 2025 are nondeductible to the extent excluded from employee income. | IRC 274(o)(1); IRC 132(e)(2) |
| Business Meals | 50% deductible if ordinary, necessary, and directly related to the active conduct of the taxpayer’s trade or business; not lavish or extravagant; and taxpayer or taxpayer’s employee is present at furnishing of meal. | 50% deductible if ordinary, necessary, and directly related to the active conduct of the taxpayer’s trade or business; not lavish or extravagant; and taxpayer or taxpayer’s employee is present at furnishing of meal. | IRC 274(k); IRC 274(n) (1) |
| Meals Provided During Entertainment | Subject to 50% limitation as long as not lavish or extravagant. Substantiation of the amount attributable to meals must be maintained. | Subject to 50% limitation as long as not lavish or extravagant. Substantiation of the amount attributable to meals must be maintained. | IRC 274(k); IRC 274(n)(1); IRC 274(d) |
How Forvis Mazars Can Help
As of January 1, 2026, IRC 274(o) has changed what can be deducted when it comes to meals expenses. If you or your organization has any questions, we advise you to reach out to one of the many trusted tax advisors here at Forvis Mazars.