Key Takeaways
- Meals at employer-operated eating facilities and meals provided for the convenience of the employer are now nondeductible.
- This change increases the after-tax cost of employee meal programs, which can affect overhead and pricing assumptions.
- Better tracking and a measured pricing review can help you maintain profitability without overcorrecting.
The One Big Beautiful Bill Act (OBBBA) made several significant updates to meals and entertainment deductions, and one of the most practical impacts for business owners is already in effect. Specific employer-provided meals that were previously 50% deductible are no longer deductible at all.
While this change shows up on the tax return, it’s also worth viewing through a profitability lens. When a deduction is reduced or eliminated, the after-tax cost of providing the same benefit increases, potentially affecting overhead and pricing assumptions over time.
What Changed for Employer-Provided Meals?
Meals at employer-operated eating facilities and meals provided for the employer's convenience are now nondeductible. Prior to OBBBA, these meals were generally 50% deductible if they met specific requirements under Sec. 119 and Sec. 274. That partial deduction helped offset the cost of providing meals for operational reasons such as keeping employees on site or supporting extended shifts.
Starting in 2026, that deduction no longer applies. For many businesses, this includes meals provided on premises to keep employees available during work hours, meals offered through a company cafeteria, or routine food programs that had become part of the workplace environment.
What Didn’t Change Under the Meals and Entertainment Rules?
Entertainment expenses remain non-deductible under Sec. 274. Business meals can still be 50% deductible if they aren’t extravagant, an employee is present, they serve a valid business purpose, and meal costs are separately stated from entertainment costs.
This is helpful because it narrows the scope of what needs review. In most cases, client meals and business development meals aren’t the primary issue. The bigger shift is in employee meals, which are now fully non-deductible.
Where Deductions Still Exist
Even with the new restrictions, some meal expenses can still qualify for full or partial deductibility, including:
- Meals treated as taxable employee compensation
- Recreational or social events for employees, such as holiday parties or company picnics, when structured primarily for non–highly compensated employees
- Meals provided to the public as part of marketing or promotional events
- Meals sold to customers as part of normal business operations
- Certain reimbursed meal expenses
- Limited exceptions for food and beverage businesses and other specific industries
The opportunity for business owners isn’t to reclassify expenses aggressively. It’s to identify which of these categories already exist in your operations and ensure they’re tracked clearly so deductions are preserved where they still apply.
How De Minimis Meals Fit into The New Landscape
De minimis meals, which are occasional meals with so little value, or provided so infrequently, that accounting for them would be unreasonable, are still nontaxable to the employee’s. Examples include coffee, doughnuts, soft drinks, occasional overtime meals, and occasional parties or picnics.
However, the key point is that the employer deduction is what changed. For amounts incurred or paid after 2025, the employer can no longer deduct expenses associated with providing food and beverages to employees through an eating facility that meets the de minimis fringe benefit requirements or for the employer's convenience. Even if the benefit remains excludable from employee wages, the business deduction may be limited or eliminated.
What Business Owners Should Do Now
The strongest response is a combination of better visibility and better pricing discipline. Many companies still group meal costs into a single expense account, making it difficult to distinguish what’s nondeductible from what's still deductible.
Separating meal categories in your general ledger is one of the simplest ways to protect profitability. Once you can distinguish employee meals from client meals, social events, and promotional meals, you can quantify the actual after-tax impact of the expenses that are now disallowed.
Keeping Profitability Strong Under the New Rules
OBBBA didn’t eliminate the value of employee meals. It changed the economics. If meals support retention, productivity, or operational efficiency, they may still be worth offering. The difference is that the decision should now be made based on the full after-tax cost, not the partially deductible cost that applied in prior years.
If you’re unsure how these changes affect your business, reach out to your CPA. With the proper tracking and a few targeted adjustments, you can protect deductions that still apply and make pricing decisions that keep profitability on track.
Frequently Asked Questions (FAQ’s)
- Are Client Meals Still Deductible?
Yes. Business meals can generally remain 50% deductible if they meet the standard rules and documentation requirements. - Are Entertainment Expenses Deductible Under OBBBA?
No. Entertainment remains non-deductible under Sec. 274. - Can Holiday Parties Still Be 100% Deductible?
Yes. Recreational or social events for employees, such as holiday parties and company picnics, can remain 100% deductible when structured appropriately. - If A Meal Is De Minimis, Does That Mean It Is Deductible?
Not necessarily. De minimis meals may still be excludable from employee wages, but the employer deduction for many of these meals is limited or eliminated under the new rules.