The One Big Beautiful Bill Act (OBBBA) changes business-meal and entertainment deductibility, effective for tax years starting January 1, 2026. The biggest shift concerns employer-provided meals. Many workplace food costs that were previously deductible are now generally paid with after-tax dollars.
Meal Expenses Under OBBBA
Starting in 2026, most employer‑provided meals are fully nondeductible. Previously, many of these meals could qualify as convenience‑of‑the‑employer, be excluded from employee income, or be treated as de minimis food or beverages—often resulting in a 50% deduction.
This included:
- On‑premises cafeterias and employer‑operated eating facilities
- Catered or in‑house business meetings
- Overtime, late‑work, or on‑call meals
- Snacks, coffee, and office refreshments
- Any costs associated with operating employer eating facilities
Now, OBBBA added new IRC §274(o), which overrides prior exceptions under IRC §274(e) and §119(a). The rule applies even where meals are ordinary, necessary, and fully substantiated.
That said, OBBBA does not eliminate every employer-meal deduction. A few narrow categories remain deductible, including:
- Meals sold in bona fide transactions for full consideration
- Meals provided by restaurants to their employees
- Certain fishing vessels, processing plants, and Alaskan fishing operations
- Specified offshore operations (vessels, rigs, platforms, and support camps)
The remaining deductions are limited to meals that are truly sold at fair market value—such as a cafeteria where employees pay the going rate for their meals—or narrow industry carve-outs (e.g., certain offshore or remote operations). If you’re not in one of these buckets, assume the deduction is gone.
Importantly, OBBBA’s new 0% rule is aimed at employer-provided meals. The familiar rules for client meals, travel meals, and several existing §274(e) exceptions remain in place.
Business meals involving clients or business contacts remain 50% deductible if they are:
- Not lavish or extravagant
- Attended by the taxpayer or an employee
- Separately stated from entertainment
Keep client meals clearly separated from entertainment on the receipt/invoice; otherwise, the entire charge can be treated as nondeductible.
Travel meals incurred while away from home for business remain deductible under existing rules.
Other §274(e) exceptions still apply, including:
- Meals treated as taxable compensation (included on W‑2 or 1099)
- Accountable‑plan reimbursements
- Employee recreational or social events (e.g., holiday parties)
- Meals available to the general public
- Meals sold to customers at fair market value
- Meals included in non‑employee taxable income
Taken together, these exceptions all reflect the principle that the deduction survives when the meal is either taxed to someone as income, reimbursed under strict accountable‑plan rules, broadly available rather than employee‑specific, or sold at market value as part of normal business activity. If the meal is simply provided to employees as a workplace benefit, it no longer qualifies.
Entertainment Expenses Under OBBBA
Entertainment (sporting events, golf outings, theater tickets, and similar client outings) remains 0% deductible as a general rule.
Two common exceptions remain available:
- Employee social events for staff as a whole (e.g., a holiday party)
- Treated as compensation (deductible only if the fair value of the entertainment is included in taxable wages on a W‑2 or reported as income on a 1099)
If you claim an exception, entertainment must be separately itemized and supported by §274(d) substantiation; if it is not (or if “treated as compensation” is not actually reported on a W‑2/1099), the deduction is disallowed and §6662 penalties may apply.
***
With the food deduction disappearing, employers will need to do the math to see whether employee food benefits are worth their future costs. For many employers this is not a niche issue—free snacks, meals, and cafeteria programs have become standard. Once the deduction goes away, these benefits become a full-cost decision.
Before 2026, pull 2025 spend on employee food (often coded to Meals, Office Expense, Employee Benefits, Recruiting, or Operations) and model the after-tax cost. That analysis should drive a simple decision: keep the program because it delivers enough value in retention, recruiting, productivity, or late-work coverage, or redesign it by narrowing scope, tightening eligibility, converting it to taxable compensation or a stipend, or replacing it with a different benefit entirely.
This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
