Rev. Rul. 62-150

Advice has been requested whether the value of meals furnished by a hospital to its employees represents "wages" for purposes of the Federal Insurance Contributions Act (Chapter 21, subtitle C, Internal Revenue Code of 1954).

The hospital, a taxable entity for Federal Insurance Contributions Act purposes, furnished one free meal a day to each employee under conditions which would satisfy the convenience-of-the-employer test for Federal income tax purposes. Inasmuch as the value of the meals in question is excludable from the employees' gross income under section 119 of the Internal Revenue Code of 1954, the hospital asks whether the value of the meals is also excludable from the employees' "wages" for Federal employment tax purposes.

In Revenue Ruling 57-471, C.B. 1957-2, 630, it is held that the value of meals furnished certain employees constitutes "wages" for Federal Insurance Contributions Act purposes. In that case a company operates a chain of variety stores within which luncheon-counters or cafeterias are operated for the purpose of serving food to customers. Each lunch-counter and cafeteria employee is entitled to a meal without charge for each meal period occurring during his work shift. Employees who do not avail themselves of the meals have no right to their cash value. The conclusion in that ruling is based on the principle that meals provided free to employees of employers in the restaurant industry do not fall within the category of "facilities and privileges" within the meaning of the applicable employment tax regulations.

S.S.T. 302, C.B. 1938-1, 456, which holds that the value of lunches furnished without charge by the M company to its employees is not "wages" for Federal employment tax purposes, was cited in Revenue Ruling 57-471. S.S.T. 302 was distinguished from the Revenue Ruling mainly on the basis that the company was not engaged in the business of preparing and serving food to customers. When S.S.T. 302 was issued, Article 207 of Regulations 90 contained the following provision:

Ordinarily, facilities or privileges (such as entertainment, cafeterias, restaurants, medical services or so-called "courtesy" discounts on purchases), furnished or offered by an employer to his employees generally, are not considered as remuneration for services if such facilities or privileges are offered or furnished by the employer merely as a convenience to the employer or as a means of promoting the health, good will, contentment, or efficiency of his employees. [Italics supplied.]

The current regulations issued under section 3121 of the Federal Insurance Contributions Act do not list cafeterias and restaurants as examples of facilities or privileges which are not considered as remuneration for services, and the convenience-of-the-employer language has long been eliminated from the Federal employment tax regulations. Section 31.3121(a)-1(f) of the current regulations provides as follows:

Ordinarily, facilities or privileges (such as entertainment, medical services, or so-called 'courtesy' discounts on purchases), furnished or offered by an employer to his employees generally, are not considered as remuneration for employment if such facilities or privileges are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, good will, contentment, or efficiency of his employees. The term 'facilities or privileges', however, does not ordinarily include the value of meals or lodging furnished, for example, to restaurant or hotel employees, or to seamen or other employees aboard vessels, since generally these items constitute an appreciable part of the total remuneration of such employees. [Italics supplied.]

Although the "convenience-of-the-employer" test has been used in the income tax area to determine if the value of meals furnished is includible in gross income, this is no longer a test for Federal employment tax purposes. See paragraph 6 of Mim. 5657, C.B. 1944, 550. The furnishing of one or more free meals daily by an employer to an employee is an appreciable part of the remuneration of the employee. Whether the employer is in the business of preparing and serving meals to customers is immaterial since, in applying the "relatively small value" test under the applicable regulations, it is obviously impossible to distinguish between the value of a meal furnished, for example, to a bank employee and the value of one furnished to an employee of a hospital or restaurant.

In view of the foregoing, it is held that the fair value of meals furnished by the hospital, in the instant case, to its employees represents "wages" for purposes of the Federal Insurance Contributions Act. This conclusion is also applicable for purposes of the Federal Unemployment Tax Act (Chapter 23, subtitle C, of the Code).

S.S.T. 302, C.B. 1938-1, 456, is hereby revoked; Revenue Ruling 57-471, C.B. 1957-2, 630, with respect to the statement that S.S.T. 302 is "still in full force and effect," is hereby modified.

Pursuant to the authority contained in section 7805(b) of the Code, the revocation of S.S.T. 302 will not be applied retroactively to taxable periods beginning prior to January 1, 1963.