Facebook and Twitter could be forced to end their famed policy of offering free lunches to employees. The Wall Street Journal is reporting that the Internal Revenue Service (IRS) has placed tech companies under intense scrutiny over perks offered to employees.
Tax lawyers working with technology startups claim that the IRS has begun clamping down on the gourmet cafeterias often found in Silicon Valley startups. Routine audits of technology companies have shown that the IRS has begun classing free meals as taxable fringe benefits.
In theory, employees might be liable to pay tax on the free food they have eaten, if it were classed as “income.” In practice, the IRS is more likely to go after the companies to pay back taxes.
If the IRS continues classing free meals for tech workers as fringe benefits then companies may have to begin paying 30% of the meals’ fair market value in tax. Tech companies will likely hate that. Some of them have in-house gourmet chefs. Facebook has several full-scale free restaurants on its Menlo Park, Calif., campus. Their presence is regarded as a competitive perk which helps companies recruit staff. The market for tech workers is so hot right now that companies use every tactic they can to get the workers they want — not just extra pay.
Furthermore, the IRS and the Treasury intend to focus on free meals as part of their tax priorities for the current tax year. While no guidance or decision has been announced on taxation of meals, it could cause many Silicon Valley startups to think twice about offering gourmet lunches to employees.
An increase in taxation on tech startups will likely see heavy lobbying from Facebook, Google and other companies affected by the IRS’ move to change tax laws. Technology companies often join together to lobby over tax issues, with Google, Apple and more companies teaming up in 2011 to push for a tax holiday.
Free meals are a well-known perk for technology employees working for companies such as Facebook and Google. At Facebook, employees are treated to free meals, which are announced in advance on the culinary team Facebook page.