The Big Beautiful Bill and Its Impact on Meal Expenses and Section 274(O)

By Connor Smart December 15, 2025

There is never a dull moment in the world of tax news and changes. From the multi-tiered phase-ins, phase-outs, and amendments to the first Trump Administration’s Tax Cuts and Jobs Act (“TCJA”), the two SECURE acts, the short-term COVID-19 Pandemic tax law modifications and credits, and now the latest HR 1 Big Beautiful Bill, there has been no shortage of major tax legislation over the past decade.

Through this onslaught of tax bills, one nugget of tax compliance – the rules regarding deductibility of meals and entertainment expenses – has been knocked about like a ship lost in a stormy sea. Unlike other business expense items, meals, entertainment, and travel costs are subject to a myriad of arcane limitations and substantiation requirements.

Furthermore, the rules and requirements that regulate how much of these expenses one can claim against taxable income have been modified multiple times. So, depending on the tax year in question and the nature of expense, funds spent on meals might be 100% deductible by the business incurring the cost, or limited to 80% of the cost, or as low 50% of the cost, or perhaps even disallowed entirely.

In December 2024, I authored an article on Meals and Entertainment Deductions and Business Expenses. In that piece, I reviewed the various changes to meal and entertainment expenses imposed by the TCJA. I also provided a bit of a retrospective on the history of meal expense items, and how TCJA changed the deductibility of those expense items. The full article is available online here: Meals and Entertainment Deductions and Business Expenses – Baker Newman Noyes.

A few months later, in Summer 2025, the second Trump Administration signed into the law the colloquial Big Beautiful Bill (“BBB”). This gigantic piece of legislation made changes up and down the tax code. We previously published a series of articles highlighting many of the tax provisions across the entire bill. You can find links to our summary of the bill as well as those specific areas here: Significant New Tax Legislation Becomes Law.

As we indicated in our previous articles on this topic, TCJA imposed a phase-out and eventual elimination for any tax deductions of certain employer-provided meal expenses. Many in the tax industry expected this “sunset” to either be delayed or cut entirely, retaining these popular tax deduction items. In actuality, what we saw with the passing of the BBB is that those sunset provisions were retained in full, which, in turn means that as we turn the last page on 2025, many previously deductible meal expenses will in fact be 100% disallowed.

Therefore, given this onslaught of tax code changes, it seemed pertinent to clarify and review this one small section of the Tax Code that generates a lot of attention: the tax deductibility of employer-provided meal expenses.

To save the reader from navigating through this entire code section, IRC Section 274, in general, for business-purpose meals expense, states that the allowable tax deduction for the cost of the meals and beverages will be limited to 50%, given the following conditions:

1. No deduction is allowed for expense items that are deemed “entertainment,”
2. Business-purpose meal expenses can only be deducted if they are not “lavish” or “extravagant,” and
3. The taxpayer (i.e., employees or business owner) must be present at the furnishing of such food or beverages.

However, Section 274 also clarifies that there is no limitation (i.e., the costs are 100% tax deductible), if any the following are true:

1. The meal and/or beverage expenses treated as compensation to employees,
2. The meal expenses are treated as reimbursed expenses paid in connection with the performance of services,
3. The meal expenses are recreational or social in nature, and primarily for the benefit of employees,
4. The meal expenses are for items purchased and provided specifically to be made available to the public,
5. The meal expenses relate to cost incurred for sales directly to customers, or
6. The meal expenses are includible in income of people who are not employees.

In other words – if the meals expense falls into one of those categories, then the deduction disallowance does not apply, and the costs are 100% deductible.

The big impact of the TCJA (and as retained in the BBB) on meal expenses finally comes in Section 274(o), which now reads as follows:

• 274(o): Meals Provided at Convenience of Employer. Except in the case of an expense described in subsection (e)(8) or (n)(2)(C), no deduction shall be allowed under this chapter for—​
• 274(o)(1): Any expense for the operation of a facility described in section 132(e)(2), and any expense for food or beverages, including under section 132(e)(1), associated with such facility, or​
• 274(o)(2): Any expense for meals described in section 119(a).

Subsections (e)(8) and (n)(2)(c) discuss meals sold to customers, and meals provided to crew members of commercial vessels, respectively.​
Section 132(e) discusses “de minimis” fringe benefits, including the treatment of certain employer-provided eating facilities. ​
Section 119(a) discusses the exclusion from employees’ gross income the value of any meals furnished to the employee for the convenience of the employer.​

This now modified Section 274(o) is effective for tax years beginning after December 31, 2025 (in other words, the 2026 tax year, for calendar year taxpayers).

So, what does this all mean, in practice?

Well, before we jump too far ahead to conclusions, it is worth noting that this is all very new. The BBB has received very little to no formal regulatory guidance since it was enacted. And even for the TCJA, there are very few definitive regulations on this specific matter, and many key items – such as the actual meaning of “meals” or “eating facility” remain largely undefined. So, pending any additional guidance, we have to do our best to interpret and apply these changes based on only the Code itself, with just the statutory language and some limited publications to guide us.

Regarding these specific kinds of meal expenses and the changes under Section 274(o), it appears to mean that, if an employer provides meals to an employee for the employer’s benefit – for example, providing meals to employees working overtime hours, so they can work later into the evening to meet a deadline – then those costs are not deductible by the employer unless the employees pick up the value of that food as income, or unless the employee is themselves purchasing the food back from the employer at fair value.

Additionally, if an employer operates an on-premises dining facility for its employees – think a cafeteria or café in the company building – the costs of that facility are also not deductible unless the cafeteria is selling the food at fair market value. Alternatively, the costs are deductible if the employees are picking up the value of their meals from the dining facility as income in their wages.

Editorial Comment: It can be difficult to tell where the line is drawn between “business purpose meals,” which would be allowed as 50% deductible expenses, versus “convenience of the employer” meals. Existing IRS Publications seem to indicate that “business purpose meals” relate to costs incurred during business-purpose travel, or resulting from meetings with clients, customers, and business partners. It is not clear if “internal meetings,” such as lunch and learn events, or late night, overtime working obligations, would also clear this hurdle. Taxpayers should review the facts and circumstances of these cost-drivers to ensure that the appropriate tax treatment is applied for each transaction.

Also note that Section 274(o), for years beginning after December 31, 2025, disallows any deduction for meal expenses excluded from employee income for being “de minimis” if such an expense is incurred through an “employer provided dining facility.” The deduction then would presumably only be reallowed if the employee actually did pick-up the value of those meals in income, or purchase the meal or beverages at fair value from the employer.

Historically, the value of these items would be 100% excludible from employee income, but still claimable by the employer as a tax-deductible expense. The rationale for this has been that the costs could be said to be “administratively impractical” to account for their individual usage, by employee.

For what is a very brief code section, and in an area that is likely to relate mostly to small-dollar transactions, the actual application of this de minimis meals and dining facility limitation is surprisingly confusing and unclear. Consider IRS Publication 15-b, Employer’s Guide to Fringe Benefits. In a section listing various benefits that may be excluded from an employee’s wages (a condition, if you recall, which in our context normally causes the employer’s related expenses to become tainted as nondeductible), it states the following:

Meals

This section discusses the exclusion rules that apply to de minimis meals and meals on your business premises.

De Minimis Meals

You can exclude any occasional meal you provide to an employee if it has so little value (taking into account how frequently you provide meals to your employees) that accounting for it would be unreasonable or administratively impracticable. The exclusion applies, for example, to the following items.

• Coffee, doughnuts, or soft drinks.
• Occasional meals or meal money provided to enable an employee to work overtime. However, the exclusion doesn’t apply to meal money figured on the basis of hours worked (for example, $2.00 per hour for each hour over 8 hours), or meals or meal money provided on a regular or routine basis.
• Occasional parties or picnics for employees and their guests.

Employer-operated eating facility for employees.

The de minimis meals exclusion also applies to meals you provide at an employer-operated eating facility for employees if the annual revenue from the facility equals or exceeds the direct operating costs of the facility. Direct operating costs include the cost of food and beverages, and labor costs (including employment taxes) of employees whose services relating to the facility are performed primarily on the premises of the eating facility. Therefore, for example, the labor costs attributable to cooks and waitstaff are included in direct operating costs, but the labor cost attributable to a manager of an eating facility whose services aren’t primarily performed on the premises of the eating facility aren’t included in direct operating costs.

However, seemingly in contradiction to this, an IRS Technical Advice Memorandum issued in 2019  stated that breakroom snacks would not constitute “meal” expenses, and that the breakroom itself would not constitute a “dining facility.”

This then begs the questions – what exactly are “meals” or “dining facilities” for purposes of these new limitations? The TAM appears to indicate that breakrooms and office snack stations do not meet the threshold to be “dining facilities” or “meals,” and so these benefits are not subject to the limitations imposed under Section 274(o).

But in contrast to this, the quoted language above from the IRS Publication 15-b directly cites “coffee, doughnuts, or soft drinks” as examples of “de minimis meals,” which would, therefore, seem to be subject to the Section 274(o) limitations and disallowances.

This puts taxpayers in a tough position – where exactly is the dividing line between “de minimis meals” and “snacks,” or between “dining facilities” and “breakrooms?” If tables, chairs, a microwave, and/or dishwasher are present, is that enough to be a “dining facility?” Are dedicated staff required to make a “kitchen” a “dining facility?” And why are doughnuts exampled as “de minimis meal,” but prepackaged snacks available for the taking are not?

Unfortunately, there are little to no guides to help us find answers to these questions; ultimately, taxpayers will have to review the facts-and-circumstances of their employer-provided meal and dining expenses and reach a position for how comfortable they are claiming the costs as either allowable, limited, or disallowed. Depending on the position reached, the Section 274(o) changes imply that such costs may no longer be allowed as deductible business expenses, unless they can fall into one of these noted exceptions.

In other words, unless the “de minimis” or “convenience of the employer” meal costs are either (a) picked up as income by the employees, (b) purchased directly by the employees, or (c) fall into one of the other excluded categories (including classifying them as “not de minimis,” entirely), then such expense items are no longer deductible by the employer.

Editorial Comment: To clarify, note that if the costs fall into the “business meals” category, or one of those other carve out categories listed previously, such as the “employee social function” category, then this Section 274(o) “convenience of the employer” limitation does not apply. If the meal expenses fit one of those other definitions, the costs may instead be 50% or 100% deductible, respectively.

Additionally, from a practical perspective, these small changes in the tax code may have significant administrative and compliance burdens.

For example, if an employer truly wants to deduct the costs of these type of meal expenses now – that is, the cost of “convenience for the employer” meals, or de minimis food and drink items – then an employer will have to develop some kind of tracking and allocation system to assign the value of that food to the applicable employee, and then include the value of that meal expense in that employee’s income. Or, alternatively, employers will have to develop some kind of system where the employees are effectively purchasing the meals or drinks from the employer. One can imagine that for more complicated or comprehensive dining facilities, that kind of system may not be practical.

Simply trying to push the costs of the meals into employee wages is not really a “simple” solution either. If the convenience-of-the-employer meals are pushed into taxable wages, then that tasks the employer with including that extra “income” into payroll tax and unemployment tax filings, as well as ensuring the value of those meals in aggregate are included in the employees’ Forms W-2. This interweaving of multiple administrative, accounting, and payroll functions could significantly complicate internal finance and bookkeeping procedures. Additionally, depending on an employer’s benefit plans, if the value of the meals is included in employee income, then that could also impact retirement plan matching, contribution, deferral, and plan discrimination testing calculations.

Naturally, this in turn also requires a further complication of businesses’ charts of accounts and internal financial statements. To truly track and support meal expenses in this new, modern tax regime, employers must maintain multiple line items for “meal” expenses. With all the different categories and deduction limitations imposed on meal expenses, having a single line-item for “meal and entertainment expenses” in a chart of accounts is likely not going to be adequate, going forward. Instead, to truly account for meal expenses that maintain compliance with Section 274, different accounts should be established for “business meals,” “social meals,” “employer-benefit meals,” and so on, so the proper limitations can be applied.

In summary, these changes brought by Section 274(o) seem to leave employers with one of the following choices for these “convenience-of-the-employer” meal costs:

1. Make the employees recognize the value in their wages,
2. Mandate that employees must buy food in a bonafide transaction, or
3. Take the tax hit and disallow 100% of the costs.

 For more information or a discussion on how this may impact your bank, please contact Connor Smart or your BNN advisor.