You can deduct your costs of providing food and lodging to your employees. You would deduct them as direct costs of your business, not as employees' wages.
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Example
If you are a sole proprietor and you rent a house for your temporary workers to live in, you can deduct the cost of the rental payments as "rental expenses" on Line 20b of your Schedule C, not as "wages" on Line 26.
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Meals for employees. Special, more restrictive rules for meals state that only 50 percent of the costs of meals provided to employees are deductible, unless the value of the meals is included in the employees' taxable wages.
Meals provided to employees for the convenience of the employer are 100 percent deductible by the employer, but are not taxable to the employees. To be considered for the convenience of the employer, meals must be taken on the business premises. Also, if an employer provides meals to its employees on the premises, and more than one-half of the employees are receiving the meals for the convenience of the employer, the meals will not be taxable to any of the employees and the employer can deduct the entire cost of all the meals.
The question of exactly what convenience of the employer means remains an unsettled question in the law. Generally, if your employees must remain on the premises in order to be available to work if needed, or if the lunch breaks are too short to allow employees to go out to eat, the meals would be considered to be for the employer's convenience.
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Save Money
You can deduct the full cost, not just 50 percent, of providing an occasional social or recreational event for your employees, such as a company picnic or holiday party.
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