Entertainment and Meal Expenses: Rules for 2026 and Beyond

October 20, 2026

Businesses often incur meal and entertainment expenses while developing customer relationships, pursuing business opportunities, meeting with vendors and advisers, recognizing employees, or completing demanding projects. Although these expenses may have a legitimate business purpose, the Internal Revenue Code imposes significant limits on their deductibility.

The rules generally distinguish between nondeductible entertainment expenses, partially deductible business meals, and certain employee meals subject to additional restrictions beginning in 2026.

Entertainment Expenses: Generally Non-Deductible

Entertainment, amusement, and recreation expenses paid or incurred after December 31, 2017 are non-deductible.

Examples generally include:

• Golf, athletic, and similar club dues

• Tickets and other costs associated with sporting events

• Expenses for recreational activities with customers or business contacts

• Social club memberships

• Entertainment facility expenses

• Other recreational or amusement activities

A business purpose does not, by itself, make an entertainment expense deductible. For example, entertaining a prospective customer at a sporting event may promote business development, but the cost of the entertainment generally remains nondeductible.

Business Meals: Generally Remains 50% Deductible

Food and beverage expenses that satisfy the applicable requirements generally remain subject to the 50% deduction limitation.

To qualify, the expense generally must:

• Be an ordinary and necessary expense of carrying on a trade or business;

• Not be lavish or extravagant under the circumstances;

• Be incurred while the taxpayer or an employee of the taxpayer is present;

• Have a bona fide business purpose.

• Food and beverages must be provided to the taxpayer or a business associate.

The food or beverages must be provided to a person with whom the taxpayer could reasonably expect to engage or deal in the active conduct of the taxpayer's trade or business such as the taxpayer's customer, client, supplier, employee, agent, partner, or professional adviser, whether established or prospective. This definition is applied to employer-provided food or beverage expenses by considering employees as a type of business associate as well as to the deduction for expenses for meals provided by a taxpayer to both employees and non-employee business associates at the same event.

The 50% limitation generally applies to the cost of food and beverages, as well as related sales tax, delivery charges, and tips.

Meals Connected With Entertainment

Food and beverages provided during an entertainment activity are not automatically treated as nondeductible entertainment. The meal component may remain eligible for the 50% deduction if it is purchased separately or separately stated from the entertainment charge and the allocation is reasonable.

For example, a company may be able to deduct 50% of a separately stated meal purchased in connection with a sporting event, while the cost of the tickets remains nondeductible.

The separate meal charge should reflect a reasonable allocation. A taxpayer cannot create a deduction by assigning an unreasonable amount of a bundled entertainment charge to food and beverages. If the meal and entertainment charges are not separately identified, the entire amount may be treated as a nondeductible entertainment expense.

Meals Provided to Employees in 2026 and Beyond

Beginning in 2026, no deduction is allowed for amounts that an employer pays or incurs for:

• meals that are excludable from an employee’s income because they are provided on the employer’s business premises for the convenience of the employer; or

• costs of an employer-operated eating facility, such as an on-site or nearby employee cafeteria. This covers both the food and beverages served there and the cost of running it, such as kitchen staff, equipment, and overhead.

Office snacks and coffee

Snacks, coffee, and other beverages in an ordinary break room are generally still 50% deductible. The new rule is aimed at meals provided for the employer's convenience and at employer-operated eating facilities, such as a cafeteria with food-service staff; snacks and drinks served through a company cafeteria are not deductible. In a 2019 ruling issued to one employer, the IRS concluded that snacks are not "meals" and that a snack area with no tables and no staff preparing or serving food is not an eating facility. Based on this, most accounting firms treat break-room snacks and coffee as 50% deductible, although some practitioners take the more conservative view that they are no longer deductible. The IRS has named guidance on this rule as a priority but has not yet issued it. Until it does, we recommend recording break-room snacks and coffee in a separate account from other meal costs so they can be adjusted easily if needed.

Holiday parties, picnics, and similar events.

Recreational and social activities held primarily for employees, such as a company-wide holiday party, annual picnic, or summer outing, are 100% deductible, including food and beverages. They are exempt from both the entertainment disallowance and the 50% limit, and this rule did not change in 2026. The treatment of an event catered by the company's own cafeteria is less certain under the new rule.

The event must not favor highly compensated employees. For 2026, a highly compensated employee is generally anyone who owns more than 5% of the business or earned more than $160,000 in 2025, a threshold that expatriate and management staff often exceed. These employees may attend, but the event cannot be held primarily for their benefit. An event held mainly for executives or owners, such as a year-end party only for the management team, does not qualify. Its entertainment costs, such as venue rental and music, are not deductible. Its food and beverages are 50% deductible only if they are purchased separately or stated separately on the invoice; otherwise, the entire cost is nondeductible. Ask the venue for an itemized invoice.

Business meals with employees.

A business meal with employees at a restaurant may be 50% deductible even when no client or customer attends, if it meets the requirements in "Business Meals: Generally Remains 50% Deductible" above: there must be a business purpose, and the meal must not be lavish or extravagant. Because restaurant meals take place off the business premises, the 2026 change does not affect them.

Federal Changes at a glanceExpense	2025	2026 and later
Meals provided on premises for the employer's convenience	50%	Not deductible
Company cafeteria: food and beverages	50%	Not deductible
Company cafeteria: operating costs	100%	Not deductible
Break-room snacks and coffee (no cafeteria)	50%	Generally 50%; IRS guidance pending
Company-wide holiday party or picnic	100%	100%
Business meal with employees at a restaurant	50%	50%