Tax Update: Changes to Meal Deductibility Under the One Big Beautiful Bill Act of 2025

Under prior tax law, employers could typically deduct 50% of the cost of meals provided to employees. In some cases, certain meals were even 100% deductible.

Business Meals (50% Deductible)
Under IRS Notice 2018-76, business meals were 50% deductible if they met the following conditions:

• The expense was ordinary and necessary under Section 162(a)
• The meal was not lavish or extravagant
• The taxpayer (or an employee) was present
• The meal was provided to a current or potential business contact
• If the meal occurred during an entertainment event, the cost was separately stated

Fully Deductible Meals
Under Section 274(e) of the Internal Revenue Code, some meals were 100% deductible if they were:

• Meals for the convenience of the employer
• Treated as employee compensation and included in taxable income
• Reimbursed under an accountable plan with proper documentation
• Offered during recreational or social activities for employees, such as parties or outings
• Served at business meetings involving employees, shareholders, agents, or directors
• Provided at conventions or meetings held by trade associations and similar organizations
• Made available to the general public, such as promotional food items or samples
• Sold in bona fide transactions at fair market value
• Included in the taxable income of non-employees, such as contractors or guests

What’s Changing

Beginning January 1, 2026, the One Big Beautiful Bill Act significantly restricts the deductibility of certain meals. A new provision, Section 274(o) of the Internal Revenue Code, disallows deductions for:

• Any expense for the operation of a facility described in Section 132(e)(2) (employer-operated eating facility), or for food or beverages associated with such a facility
• Any expense for meals described in Section 119(a) (meals provided for the convenience of the employer)

Limited Exceptions: Meals remain deductible if they are sold by the taxpayer in a bona fide transaction for full consideration, or if provided on certain fishing vessels or processing plants.

What Remains Unchanged

The general rule under Section 274(n) remains intact: business meals are still 50% deductible, unless a specific exception applies. The nine exceptions listed in Section 274(e) continue to exist, but meals provided for the convenience of the employer (or via employer facility) are no longer deductible unless they meet one of the remaining exceptions. This is because Section 274(o) creates a new disallowance that overrides the previous exception.

Compliance and Documentation Requirements

Proper documentation remains essential for all meal deductions and must include the expense amount, time and date, location, business purpose, and the relationship of people involved. A critical reminder: if meals are bundled with entertainment expenses and not separately itemized, the entire expense becomes nondeductible.

Certain industries may still qualify for full deductions under specific rules, particularly commercial shipping, oil and gas, and fishing operations.

Action Items for Business Owners

To ensure compliance with these new limitations effective for tax years beginning after December 31, 2025, business owners should take several immediate steps. Review your current meal expense policies and procedures, and evaluate how employer-provided meal programs will impact your tax situation. Update your expense documentation and substantiation procedures to reflect the new requirements, and consider alternative employee benefit strategies that may provide better tax advantages under the revised rules.

For further guidance or questions regarding this transition, please contact your BMF advisor. Our team is ready to help you navigate these changes and optimize your tax planning strategies for 2026 and beyond.