The OBBBA largely keeps the TCJA’s rules for meals and entertainment but clarifies certain areas for future tax years. Entertainment expenses remain non-deductible, while most business meals are still 50% deductible if they meet substantiation and eligibility requirements (proper records, not lavish, taxpayer/employee present).

Key changes and clarifications:

Substantiation Requirements: No changes—taxpayers must continue to document amount, time, place, business purpose, and business relationship for each meal.

Employer-Provided Meals & Facilities: Starting in 2026, employer-operated eating facility expenses and meals provided for the employer’s convenience become nondeductible under Section 274(o).

Exceptions: Businesses that sell food or beverages (e.g., restaurants, caterers), as well as fishing vessels and certain fish processing facilities, may still deduct these meals—typically at 50%.

Convenience-of-Employer Meals: Currently 50% deductible; fully disallowed after 2025 unless an exception applies.

100% Deduction Exceptions (Section 274(n)(2)):

Certain categories remain fully deductible, including:

Meals treated as employee compensation (with limited exceptions)

Meals for crew on certain specified commercial vessels or qualifying facilities

Employee recreational/social events (e.g., holiday parties/company picnics)

Items made available to the public (promotional events)

Entertainment sold to customers

DOT “hours of service” meals (80% deductible)

The temporary pandemic-era restaurant meal exception is repealed for years after 2025.

Takeaway for businesses:
From 2026 onward, many employer-meal deductions disappear. Businesses with both customer-facing and employee meal operations must separately track costs. Employee income exclusion rules under Sections 119 and 132 remain unchanged. Review your current expense policies to ensure compliance with the new rules. Maintain detailed records and receipts for all meal and entertainment expenses.

Contact Us

If you have questions about the information outlined above, or need assistance with another tax or accounting issue, Dermody, Burke & Brown CPAs can help. For additional information call 315-471-9171 or click here to contact us. We look forward to speaking with you soon.