The One Big Beautiful Bill Act (OBBB) modified Section 274(o) such that, for tax years beginning after Dec. 31, 2025, employer expenses related to providing meals for the convenience of the employer or meals in company cafeterias are 100% disallowed. The OBBB also added an exception to a provision included in the Tax Cuts and Jobs Act of 2017 which allows employers that provide meals to customers and employees, such as restaurants, to continue to deduct 100% of those employee meal costs. Lastly, the OBBB introduced a 100% allowance for deductions in specific circumstances for meals provided on fishing boats and in fish processing facilities. 

Background

General meal deduction requirements

Section 274(n)(1) generally provides that the amount allowable as a deduction for any expense for food or beverages shall not exceed 50% of the amount of the expense that otherwise would be allowable. To qualify for a tax deduction, meal expenses must meet all five of the following criteria.

1. Meals must be common and helpful in your trade or business (i.e., Ordinary and Necessary). Internal Revenue Code (IRC) Section 162(a).
2. Meals shall not be lavish or extravagant as only reasonable costs are deductible. IRC Section 274(k).
3. Meal expenses must be adequately substantiated and require proper documentation, such as receipts, attendance rosters and a clear allowable purpose. IRC Section 274(d).
4. The taxpayer or appropriate representative must be present at the meal associated with such expenses. IRC Section 274(k).

In addition to the above, food and beverage costs should be separately stated from any entertainment expenses where both entertainment and dining occur at one event. Treas. Reg. Section 1.274-11 and 1.274-12.

Specific meal deduction requirements

Per IRC Section 274(e), specific meals and entertainment expenses may qualify for a 100% deduction. These expenses include any expenses treated as compensation to employees per IRC Section 274(e)(2), any expenses for activities that primarily benefit non-highly compensated employees (e.g., holiday parties) per IRC Section 274(e)(4), expenses for goods, services and facilities made available to the general public per IRC Section 274(e)(7), expenses for entertainment sold to customers at full value in a bona fide transaction per IRC Section 274(e)(8), and expenses reported as income to nonemployees on Forms-1099 per IRC Section 274(e)(9).

Entertainment expense rules

Generally, taxpayers cannot deduct the cost of an activity of a type generally considered to be entertainment, amusement, or recreation, even if it has a business purpose. IRC Section 274(e) provides specific cases where entertainment expenses are deductible. These cases include meals for employees on business premises, expenses treated as employee compensation, expenses reimbursed under an accountable plan, recreational and social activities for non-highly compensated employees, expenses directly related to business meetings or conventions, entertainment provided to the public, or entertainment sold to customers or reported as income to nonemployees. Nondeductible expenses include expenditures such as tickets for sporting events and theatre shows, stadium seating licenses, golf outings, club dues and hunting, fishing or sailing trips. The treatment of these expenses remains largely unchanged by the OBBB.

Summary of OBBB-specific meals and entertainment deductibility changes

The OBBB has made significant changes to the deductibility of meals and entertainment expenses specifically provided to employees. Effective Jan. 1, 2026, expenses considered provided for employer’s convenience are 100% disallowed by changes made under Section 274(o). This means that certain expenses characterized as De Minimis Fringe Benefits, such as snacks, coffee, overtime meals or meals provided on-site from an employer cafeteria are no longer deductible for tax purposes. However, expenses that meet specific criteria under IRC Section 274(e), as outlined above, may still be eligible for deduction. 

Additionally, changes effective Jan. 1, 2026 include additional criteria for 100% deductible meal and beverage per IRC Section 274(n). IRC Section 274(n)(2)(C) provides that expenses for meals and beverages provided on fishing boats or in fish processing facilities are 100% deductible. Further, as specified per IRC Section 274(e)(8) and Treas. Reg. Section 1.274-12(c)(2)(v)(B), establishments that provide meals to customers and to their employees may deduct 100% of employee food or beverages expenses. And, finally, deductibility may still be allowed for some taxpayers who operate on-site cafeterias that are open to the public and generate revenue through full-value sales. Taxpayers who run an on-site cafeteria serving both the public and its employees must keep separate records for employee meals. Starting in 2026, any meals provided to employees will continue to be treated as being for the employer’s convenience and will not be deductible under Section 274(o)(1)(2).

What does CohnReznick think?

The OBBB’s changes to meals and entertainment deductions represent a major shift for employers. Eliminating the deduction for meals provided for the employer’s convenience – such as snacks, coffee, and cafeteria meals – will significantly impact businesses that rely on these benefits to support operations. At the same time, targeted exceptions for restaurants and certain industries, like fishing, create planning opportunities for those who qualify. CohnReznick believes proactive review is essential: businesses should assess current practices, model the financial impact, and explore strategies to mitigate disallowances. Our National Tax Office is ready to help you navigate these complexities and identify the best course of action.