Restaurant Sales Tax Audit and Employee Meals in Illinois
Understanding Use Tax on Employee Meals
If you are being audited for sales tax in the state of Illinois, you might be surprised to find out that employee meals are subject to use tax. Make sure you are recording the number of meals that you are giving out each night so that the auditors do not consider the sales to be those made to customers, instead of your employees.
Use tax is far less in Illinois as compared to sales tax.
🎥 Video Explanation
Transcript
Q&A from Donna, Plainfield, Illinois
“Am I supposed to be taxing my employees for their meals?”
So, Donna, my assumption is that you’re a restaurant owner and you give out employee meals.
The Illinois Tax Complication
The real kicker here is that you’re living in the state of Illinois. Your business is in the state of Illinois, and that’s the trickiest part of this whole equation.
Because the state of Illinois says:
If you’re actually going to give out a plate of food to your employees as their employee meal, even though it’s a perk, you actually have to charge use tax on that.
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Clarifying the Tax
- The employee doesn’t necessarily have to pay you the $10.
- You don’t have to charge the full sales tax on that $10.
- You do have to charge the use tax, which is about $0.625.
Documentation is Key
It’s unfortunate, but you should:
- Document all of your employee meals
- Otherwise, the auditor may say:
“These are meals that were probably prepared and sold, and you should have been charging full sales tax on that.”
Example
If you’re giving out 12 employee meals a night, you are:
- Charging use tax of 6.25% times the total meal value
- Required to report that to the state every month
Frequently Asked Questions
What is the difference between sales tax and use tax on employee meals in Illinois?
Sales tax applies to transactions where money is exchanged for goods or services. Use tax, however, applies to goods used or consumed by a business, even if no sale occurred. In Illinois, employee meals are considered “use,” so the restaurant must pay use tax on them—even if the employee doesn’t pay for the meal.
Do I need to charge my employees for their meals to comply with Illinois tax law?
No, you do not need to charge employees for their meals. However, you are still required to pay use tax on the value of those meals. The use tax is calculated based on the cost of the meal, not the full retail price.
How is the use tax on employee meals calculated in Illinois?
The use tax is typically calculated at a rate of 6.25% on the value of the meals provided. For example, if you provide $10 worth of food, you would owe approximately $0.625 in use tax per meal.
What kind of records should I keep regarding employee meals?
You should maintain detailed documentation of all employee meals provided, including the number of meals, dates, and approximate value. This helps prevent auditors from mistakenly classifying those meals as sales to customers, which would require full sales tax reporting.
Why is documenting employee meals so important during an Illinois sales tax audit?
Without proper documentation, auditors may assume the meals were sold to customers, subjecting them to higher sales tax instead of the lower use tax. Accurate records protect your business from unnecessary tax liabilities and ensure compliance.