There’s no such thing as a free lunch, or so the saying goes. Beginning in 2026, that idea becomes even more relevant as the IRS enacts new rules on meals and entertainment deductions passed under the One Big Beautiful Bill Act (OBBB).
While meals purchased from restaurants were temporarily 100% deductible in 2021 and 2022 to support businesses during COVID relief efforts, the rules surrounding meal deductibility have continued to evolve. These adjustments bring us to the current set of changes that will take effect under IRC §274 beginning in 2026.
New Nondeductible Meal Categories Beginning 2026
Under OBBB, several meal categories that were previously 50% deductible will become entirely nondeductible starting in 2026. Including:
- Meals provided for the convenience of the employer, generally when the employer has a substantial, non‑compensatory business reason for providing them such as on-call readiness, short lunch breaks or business necessity. Overtime meals and on-premises meals to help keep employees working would also be included. No more bringing in lunch for working meetings to avoid that hour out.
- Employer‑operated cafeteria meals
- Office snacks, coffee, and breakroom food
With these changes, employers will need to reassess the financial value of these fringe benefits. Companies may have to consider whether providing snacks, meals and cafeteria programs still makes sense when no tax benefit is received in return.
Note that the one exception is for restaurant workers. Those on-site covered meals continue to be deductible.
As employers consider how these meal-related changes may affect their current practices, it is also important to review how entertainment expenses are treated under the updated IRS rules.
Entertainment Expenses
Under the Tax Cuts and Jobs Act (TCJA), the IRS eliminated any deduction for entertainment expenses, and this treatment will continue in the coming years. This includes costs for activities such as:
- Golf outings
- Sporting events
- Concerts
- Theater tickets
- Similar entertainment‑related activities
Although entertainment expenses remain non-deductible, one important exception continues to apply for companywide social events.
Important Exception
Holiday parties and similar company‑wide events for all employees have been and will remain 100% deductible. These fall under the IRC §274(e) exception for recreational and social events, meaning that the related food, beverages and entertainment continue to be fully deductible.
A holiday party is fully deductible when:
- The party is primarily for employees (not just owners or highly compensated executives).
- It qualifies as an employee recreational or social event, such as a holiday party, picnic, or team building gathering.
- All employees are invited, or at least a broad group (e.g., all staff at a location)
This includes all food, beverages, entertainment and venue costs. Including spouses or family members does not automatically disqualify the deduction, if the party is clearly an employee recreational/social event. The IRS views the spouse’s attendance as part of the employee’s participation, so food, drinks, entertainment and venue costs remain deductible.
To put these rules in context, it is helpful to look back at the framework first established under the TCJA, which shaped how meals and entertainment deductions were treated prior to the current changes.
Previous Rules under TCJA
In 2017, the TCJA made several changes to the deductibility of meal and entertainment expenses. As a rule, employers could deduct 50% of business‑related meals if they were not lavish or extravagant. Under TCJA rules, business meals were eligible for a 50% tax deduction when used for:
- Meals with clients
- Business travel meals
- Team meals purchased from restaurants or similar establishments
- Food purchased from restaurants for meetings
- Food and beverages for company events when purchased from a restaurant
These historical rules provide a helpful point of comparison as employers consider how the 2026 changes may affect their current practices.
Next Steps for Businesses
As these IRS changes take place, employers should take time to review their current meals, entertainment, and fringe benefit programs to understand how the new rules will affect their tax positions. Updating internal policies, adjusting budgets and communicating expectations to employees will help ensure a smooth transition throughout 2026.
It is also important to properly classify the costs throughout the year. Set up specific general ledger accounts for different categories of meals to separate out the deductible versus non-deductible expenses. While some meal deductions are expanding, others are disappearing entirely, making proactive planning essential for managing costs and staying compliant under the updated tax landscape.
Windham Brannon’s Tax Practice professionals can provide the right guidance and assist in these matters. For questions or more information, contact your Windham Brannon advisor today, or reach out to Michael Chow or Nicole Suk.
