Holiday Party and Tax Planning

December 21, 2021

By Dawn Badorini, MST

Many companies took their holiday parties virtual in 2020. Will we see the return of the in-person office party in 2021? Most likely, this year will see some variations of both. No matter how you choose to celebrate and show appreciation to your staff, these events are typically 100% tax deductible for the employer. For a little background, the Consolidated Appropriations Act (CAA) of 2021 introduced a temporary 100% deduction for expensing business meals purchased from qualifying restaurants. A qualifying restaurant is defined as a business that prepares and serves food and drinks for immediate consumption, whether on or off-premises. Business meals can include meals for out-of-town travel and meals during business discussion with clients. The 100% deduction is currently in place through December 31, 2022. This deduction was previously 50%. This temporary increase only applies to meals and anything that constitutes entertainment or recreation is still nondeductible.

However, recreational and social activities for employees (summer picnic, holiday party) are still fully deductible provided they are primarily for the benefit of non-highly compensated employees and their families. This means you can fully deduct the costs to provide your employees and their guests with dinner and entertainment, such as live music. This doesn't just apply to in-person events. If you choose to throw a virtual holiday party for your employees, as long as your entire workforce is included, you can deduct the cost of food, beverages as well as delivery costs to get the meals to employee's homes. This is considered a de minimis fringe benefit and not taxable to employees. It is important to keep in mind that the 100% deductibility applies to employees (and their guest) only. If customers and others attend, holiday parties may only be partially deductible.

Although any type of social gathering will probably look different than pre-Covid times, they are still a great way to celebrate your company's accomplishments and express gratitude to your employees. With the added benefit of a 100% tax deduction, they can be also be a much-needed win-win for all.

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This material is generic in nature. Before relying on the material in any important matter, users should note date of publication and carefully evaluate its accuracy, currency, completeness, and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.

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