Employees at large companies have at various times received nice perks as part of their jobs. 401(k) matches are pretty standard fare these days. Bonuses on Wall Street and at other firms during bull markets are legendary. But sometimes the everyday work incentives are a little more generous.

The perks showered upon tech company employees in Silicon Valley are well documented: kitchens stocked with gourmet made-to-order meals; beer on-tap; colorful bikes to peddle around campus; break rooms with video game consoles, pool tables and other entertainment; fitness facilities and training classes; weekly concerts and team-building activities. Companies promote this culture as a “work hard, play hard” lifestyle that is good for the bottom-line because it creates happy employees who are diligent and stick around.

If you work for such a company, life is good – until the tax man shows up. What used to be a free incentive to employees that was deducted by the company may soon show up as taxable income on a W-2. The new worry about possible action by the Internal Revenue Service, and thus California action, comes from a recently released list of regulatory items the Treasury Department intends to pursue (referred to as the Priority Guidance Plan). The agenda item that has raised interest about the IRS plans simply states that the Treasury Department and IRS intend to provide “guidance under Sections 119 and 132 regarding employer-provided meals.”

In the past, employer-provided meals have typically been regarded as excluded from gross income, meaning the imputed value of such meals has not been considered part of an employee’s wages. Internal Revenue Code Section 119 excludes from income tax the value of meals given to employees if the food handout is provided on the company’s premises for the employer’s convenience. Section 132 treats employer-provided meals as a “de minimis fringe benefit” that is not taxed if the value is “so small as to make accounting for it unreasonable or administratively impracticable.” In prior guidance, the IRS has blessed excluding from income the value of coffee, doughnuts and soft drinks provided to employees.

Of the two code sections, California taxpayers probably have more to worry about from how the IRS might interpret Section 119, as the Section 132 de minimis fringe benefits may not apply to some of the employer-offered perks. Based on the statutory language of Section 119, a plain reading of the law would seem to give employers significant leeway in offering meal benefits to workers. It is probably convenient for tech companies to offer worksite meals so that productivity isn’t impeded from longer lunches required by traveling offsite. After all, the sprawling domains of certain large tech companies might mean that off-campus food vendors are a significant hike for employees to reach, cutting into productivity. Companies also often cite the benefits of employee collaboration from mealtime interaction as another reason to provide free food.

But IRS scrutiny might convince officials that too much of a good thing is actually bad for taxpayers and may lead to a fiscal stomach-ache. If the Treasury Department makes a policy decision that many company meals might be taxable, it could assert that the food benefits are more than just for convenience. One likely argument by the government is that the array of offerings at many workplaces is way beyond a simple work lunch and is compensatory in nature. The theory goes that tech cafeterias don’t simply dole out bland sub sandwiches and salads – in some cases, employees can order organic entrees, smoothies and custom dishes paralleling those found at high-end restaurants. That view, of course, is interpretative and undoubtedly would lead to legal fights over the nature of such perks.

According to some news reports about companies that have already tangled with the IRS over this issue, the government seems to think that such meals are taxable because they substitute for increased employee compensation. There is a limit to the generosity a company can offer regarding meals: the IRS has stated in a publication on fringe benefits that meals furnished to promote goodwill, boost employee morale or attract prospective workers are not based on an employer’s convenience. Especially where the potential accumulated value to an employee is substantial in taking advantage of free on-site meals, the work perk might be viewed as providing an equivalent of extra income to employees that escapes tax.  Higher wages, in many cases, have a cascading effect into more than just income taxes, and other federal, state and local taxes, including employment taxes, may increase.

If the Treasury Department moves forward with adopting a stricter stance toward free meals, employees and their employers may be on the hook. The fair market value of the meals would have to be included in employee income that an employer is required to withhold on. The possible consequences of a policy change could result in companies dialing back the extent and quality of their food offerings, or possibly “grossing up” the tax imposed on the freebies to employees so that there is no hit to an employee’s actual take-home pay.

Regardless, a move by the IRS to impose its view of taxable meals would create administrative headaches for companies, who would have to track and value the meals in order to determine the additional taxable income to employees that employers would be required to withhold on. Some companies might decide to litigate the issue since meals and the perceived benefits of such policies have become an integral part of the tech industry culture. Whether courts go along with any policy change would depend both on the facts of each case, as well as the extent of any IRS rules and the reasons articulated for them.