A Savory Win For Contractors – Meals Per Diems Now 100% Deductible

• November 19, 2021
• Benson P. Theuninck, CPA MBT CCIFP

Since January 1, 2021, the tax law allows a temporary exception to the commonly known 50% deduction for business meals, so long as the meal is provided by a restaurant.  Foods purchased from a grocery or convenience store remain 50% deductible, but meals from restaurants are temporarily 100% deductible. 

Recordkeeping for meals gets cumbersome, so contractors often pay per diem allowances to traveling employees, following IRS established rates.  Per diem payments conveniently avoid accumulating receipts, while still satisfying the IRS’s preference for adequate substantiation. Meals per diems have traditionally been subject to the 50% limitation so we weren’t certain if we could squeeze 100% “restaurant” character from ordinary daily per diems. 

Thankfully, the IRS recently released Notice 2021-63 stating that the meals portion of any qualified per diem will be considered 100% deductible from January 1, 2021 through December 31, 2022. This allows existing per diem plans to continue without added recordkeeping and the meal portion of IRS approved per diems will be 100% deductible during this time.  Keep in mind that various states may not conform to this same treatment. 

This Notice released by the IRS is a small, temporary win for contractors (and other taxpayers) both in terms of securing full deductibility of meals and in terms of not needing additional recordkeeping changes.  But keep your “formerly-50%” meals segregated in your accounting records since the above rule will sunset when we get to 2023.  You’ll probably need to go back to the 50% calculations at that time.   

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