![]() When an independent contractor adequately accounts to a client or customer separately for meals and entertainment expenses the client or customer must keep records of the expenses, the client or customer is subject the 50% limitation on deducting those expenses, and does not need to report the amount to the independent contractor on a Form 1099-MISC. Sometimes businesses have arrangements for reimbursements, advances, or allowances with independent contractors for meals and entertainment or travel expenses incurred on their behalf. ![]() The allowed expenses then get itemized on the employee’s Schedule A, subject to the 2% of adjusted gross income limitation that applies to most miscellaneous itemized deductions. The employees may claim the expenses included on their W-2 on their personal return on Form 2106 or Form 2106-EZ, subject to the meals and entertainment deduction limitations. The employer deducts these reimbursements as wage expense on their books. Under a nonaccountable plan the expenses the employer reimburses are reported as wages on the employee’s W-2, subject to withholding and employment taxes. The employer may deduct the meals and entertainment expenses as business expenses subject to the limits mentioned above.Īrrangements between employers and employees for reimbursements, advances, or allowances not satisfying one of the three requirements above for an accountable plan will be regarded as a nonaccountable plan. They must have a business connection, provide expense substantiation in a reasonable amount of time, and return any excess employer reimbursements/advances. Accountable plans must meet three requirements on an employee-by-employee basis. Employee expenses reimbursed under an employer’s accountable plan are not income to the employee. It also happens when employers need employees available for emergency calls during their normal meal period, when the employee is restricted to a short meal period while not being expected to eat elsewhere in a short time period, or when an employee is unable to have proper meals within a reasonable time such as when eating establishments are not located nearby.Įmployers decide whether to reimburse employees under an accountable plan or a nonaccountable plan. The most common meal is provided when an employer requires employees to work extended hours beyond their normal work day or on weekends. Meals provided in an employer’s sponsored eating facility if it is 50% or fewer employees meet the “convenience of the employer test”įor a meal to be considered furnished for the “convenience of the employer” the business must have provided it for substantial non-compensatory business reasons.Business luncheons at clubs or night clubs.Restaurant meals (a member of the business must be present for customer entertainment).Some of the more common meals and entertainment expenses that are subject to the 50% deductible limitation include: Meals provided in an employer’s sponsored eating facility if over 50% of the employees meet the “convenience of the employer test”.Business gifts under $25 per person per year.Meals and entertainment included in employees’ compensation or Form 1099 for non-employees.Employee holiday parties, including holiday cards and decorations.Fully deductible meals and entertainment expenses include: ![]() 9625) effective August 1, 2013.Īll entertainment expenses require business discussions either before, during, or after the entertainment event. The Internal Revenue Service has recently released new regulations regarding payments under expense allowance arrangements (T.D. ![]() Some businesses even have similar arrangements with independent contractors. Most businesses have some sort of expense reimbursement plan for their employees who incur these expenses performing their work, but do not fully understand how they need to be reported to the employee or as a business expense. Meals and entertainment expenses at some point usually become a hotbed topic as many clients are unaware what is subject to deduction limitations and what expenses are fully deductible in order to be properly classified. ![]()
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