Question

Sue works part-time as a waitress at Busy Burger. Busy Burger allows all employees a 40 percent discount for any food that they buy and consume on the premises.

During 2016, the value of this 40 percent discount for Sue amounted to $2,500 for days on which she was working at Busy Burger (she ate during mealtime at work), and $1,500 for days on which she did not work but still stopped by after class during mealtimes. How much gross income must Sue recognize for 2016 with respect to the discount plan? Will she be able to deduct the 40% discount under Section 132 Certain Fringe Benefits, or Section 119 Meals and lodging furnished by the employer, or both?

Answer 1

Since, details on employment is not provided, we will assume that the employee is working in a restaurant or food service organization. As per applicable provisions, any meals provided to employees on working days will not be included in taxable income of the employee, even if the meal is consumed before / after the working hours. Therefore, total discount of $2,500 will not be included in the wages of employee & will not be considered as taxable.

Value of $1,500 discount has been received for meals purchased on non working days & as per provisions applicable to employees working in restaurants or fast food service organization, will be included in gross income of employee.