Meals and Entertainment Deductions Under the OBBBA
IRS Guidance
Under the One Big Beautiful Bill Act (OBBBA), starting in 2026, deductions for employer-operated eating facilities and meals provided for the “convenience of the employer” under section 274(o) will be fully disallowed, marking the end of a long-standing tax break for many corporate cafeterias and on-site dining.
Businesses must continue to document the “who, what, when, where, why” for all meal expenses to remain compliant, especially as pandemic-era 100% restaurant meal exceptions are officially repealed for years after 2025. Because some categories, such as meals treated as compensation or items made available to the public remain deductible, it is critical for companies to separately track costs for customer-facing versus internal employee meal operations.
The OBBBA largely keeps the Tax Cuts and Jobs Act (TCJA) rules for business provisions, the bill clarifies certain areas for future tax years. Entertainment expenses remain non-deductible. Most business meals are still 50% deductible if they meet substantiation and eligibility requirements, such as proper records, not lavish, and taxpayer/employee present.
Key Changes and Clarifications
- Substantiation Requirements – No changes. Taxpayers must continue to document amount, time, place, business purpose, and business relationship for each meal.
- Employer-Provided Meals and Facilities – Starting in 2026, employer-operated eating facility expenses and meals provided for the employer’s convenience become non-deductible under section 274(o).
- Exceptions – Businesses that sell food or beverages, as well as, fishing vessels and certain fish processing facilities, may still deduct these meals, typically at 50%.
- Convenience-of-Employer-Meals – Currently 50% deductible, fully disallowed after 2025, unless an exception applies.
- 100% Deduction Exceptions from Section 274(n)(2):
- Meals treated as employee compensation (with limited exceptions).
- Meals for crew on certain specified commercial vessels or qualifying facilities.
- Employee recreational/social events (e.g. holiday parties or company picnics).Items made available to the public (e.g. promotional events).
- Items made available to the public (e.g. promotional events).
- Department of Transportation (DOT) Hours of Service (HOS) meals which are 80% deductible.
- The temporary pandemic-era restaurant meal exceptions are repealed for years after 2025.
Key Takeaways for Businesses
From 2026 onward, many employer-meal deductions disappear. Businesses with both customer-facing and employee meal operations must separately track costs. Employee income exclusion rules under Sections 119 and 132 remain unchanged. Review your current expense policies to ensure compliance with the new rules. Maintain detailed records and receipts for all meal and entertainment expenses.
Contact Us
If you have questions about the information outlined above, or need assistance with another tax or accounting issue, John Pharr CPAs can help. For additional information call 850-435-8844. We look forward to speaking with you soon.
Helpful Links:
IRS Tax Cuts and Jobs Act Information
IRS One Big Beautiful Bill: Business Tax Provisions Webinar Transcript
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