Hiring credits and staff meals in 2026: WOTC status and the §274(o) restaurant exception

Two rules that affect restaurant payroll costs changed at the start of 2026. The Work Opportunity Tax Credit lapsed for new hires, and on-site employer meals became nondeductible, with a carve-out for restaurants.

The WOTC lapse and hiring records

The Work Opportunity Tax Credit rewards hiring from targeted groups such as veterans, SNAP recipients, and the long-term unemployed. It is typically worth up to $2,400 per eligible hire, and more for some veterans. The credit doesn't apply to employees who begin work after December 31, 2025, and the IRS says Form 8850, the old pre-screening and certification request, is no longer in use.

Hires who started on or before December 31, 2025 still count. Their first-year wages paid in 2026 can still earn credit, as can second-year wages for long-term family assistance recipients. State workforce agencies must keep processing certification requests for these hires, including backlogs.

Congress has let WOTC lapse before and then extended it retroactively. After the 2015 renewal, the IRS gave employers extra time to submit requests for hires made during the lapse. To be ready if that happens again:

• Keep records for each new hire: the job offer date, the start date, and any eligibility screening done on or before the offer.
• Ask your state workforce agency whether it is accepting or holding requests for 2026 hires. Under DOL guidance, states may review and prepare them during the lapse but can't certify them.

Key numbers: WOTC lapsed for hires starting on or after Jan. 1, 2026 · Form 8850 no longer in use · §274(o) restaurant exception for staff meals.

On-site employer meals under §274(o)

Starting in 2026, §274(o) disallows deductions for meals provided for the convenience of the employer and food at on-site eating facilities. Previously, many businesses deducted 50% of such meals.

The restaurant exception rests on the 2025 law's exemption for food and beverages sold to customers. IRS regulations under that exception let a restaurant or catering business deduct 100% of the food it buys for paying customers' meals when employees who work in that restaurant or catering business also eat it at the worksite. Shift meals for restaurant staff therefore remain fully deductible. To support the deduction, document:

• That the business is a restaurant serving the public.
• The staff meal policy and how the cost is tracked, often as a COGS reduction or in a separate account.

Hotels and other hospitality businesses should review each operation, because staff outside food service, such as housekeeping, or staff employed by a separate management company or PEO may fall outside the exception.

In Connecticut, free shift meals also aren't subject to the 7.35% meals tax, as long as employees aren't charged and nothing is deducted from their pay.

A worked example

A three-unit casual dining group feeds 120 employees a shift meal, costing about $95,000 a year in food. The group keeps its 100% deduction under the restaurant exception. Its affiliated management company, which provides catered lunches to office staff, loses its deduction for those meals starting in 2026 if they're convenience-of-employer meals or on-site eating facility food. Occasional catered lunches that are neither stay 50% deductible.

Other credits to consider

• The empowerment zone employment credit, for businesses in designated zones, if extended.
• State hiring and training credits, which vary widely.
• Energy-efficient building deductions under §179D for owned buildings, but only for projects whose construction began by June 30, 2026.

In Connecticut

The Connecticut Department of Labor's WOTC unit is accepting and holding certification requests for workers who started on or after January 1, 2026, through CTHires or by mail, but it won't issue certifications for them unless the credit is renewed. Connecticut has no state hiring credit that fits most restaurants. Its older job-creation credits have expired, and JobsCT rebates require at least 25 new full-time jobs paying at least $37,500 and 85% of the town's median household income. Two newer state credits may fit:

• Employers with fewer than 50 Connecticut employees that adopt an individual coverage HRA through the state's health insurance exchange, instead of a group health plan, can apply for an ICHRA credit of up to $1,000 per covered employee for the first year they offer it and the next, starting with 2026. Credits are first come, first served, with a $5 million annual cap.
• The CHET employer credit equals 25% of an employer's contributions to employees' CHET 529 college savings accounts, up to $500 per employee a year.

How Summer Associates helps

Summer Associates claims WOTC for hires made before the lapse, keeps hiring records ready with your payroll provider in case it's renewed, documents your staff meal treatment, and identifies state credits available for your locations.

This guide is general education based on federal and Connecticut law as of 2026-11-15. State rules differ and facts matter. Before acting, get advice for your situation from Summer Associates or another qualified advisor.