Northwestern Mutual is squaring off with the IRS over $23 million in taxes, taking aim at how the agency treats free employee meals - a fight that could send ripples through the insurance industry.
On September 2, 2025, The Northwestern Mutual Life Insurance Company filed a lawsuit in the United States District Court for the Eastern District of Wisconsin, seeking a refund of $23,047,094 in federal income taxes, FICA taxes, and underpayment interest. The company’s complaint centers on the IRS’s assessment of taxes on free on-campus meals provided to employees at its Wisconsin campuses - a practice Northwestern Mutual says has been in place for 110 years.
Here’s the gist: Northwestern Mutual has long provided free cafeteria meals to its employees at its Milwaukee and Franklin offices. The company claims this is not just a perk, but a business necessity. With thousands of employees on site and few restaurants nearby, Northwestern Mutual argues that providing meals is essential to its operations. Many employees, according to the complaint, are limited to a 35-minute lunch period, making it impractical to leave campus for meals.
The insurer cites Section 119 of the Internal Revenue Code, which allows exclusion from gross income for meals furnished by an employer for substantial non-compensatory business reasons, on the employer’s business premises. Northwestern Mutual maintains that its program meets these requirements and that the IRS had previously accepted this tax treatment, including a favorable ruling in 1948. The complaint asserts that the IRS has now reversed its position, disallowing the exclusion for tax years 2014, 2015, 2018, and 2019, and assessing millions in additional taxes and interest.
Northwestern Mutual’s complaint details that during the relevant tax years, the Milwaukee campus served an average of 2,200 to 2,500 meals daily, with a peak of 3,100, while the Franklin campus served between 1,600 and 2,000 meals daily, with a peak of 2,600. The company argues that the local restaurant capacity is insufficient to accommodate its workforce during lunch hours.
The complaint also outlines additional business reasons for the meal program, such as promoting employee and business development, maintaining confidentiality in business discussions, improving health and productivity, and supporting the company’s self-insured health care plans. Northwestern Mutual states that these factors all support the exclusion under Section 119.
The IRS assessed additional income and FICA taxes for the value of the meals for the 2014, 2015, 2018, and 2019 tax years. Northwestern Mutual paid the disputed taxes and underpayment interest, then filed timely claims for refunds, which the IRS disallowed. The company is now seeking a refund of $18,900,414 in taxes and $4,146,680 in underpayment interest, as well as overpayment interest on any awarded sums, and a judicial declaration regarding the application of Section 119 to its meal program.
This case does not involve insurance policy clauses or claims handling. Instead, it focuses on the tax treatment of employee benefits at a large insurance company. The outcome could have implications for other insurers and large employers who provide similar benefits.
For the insurance industry, the case highlights the importance of regulatory clarity around employee benefits and tax compliance. The decision, once issued, could affect how insurers and other large employers structure and report employee meal programs. For now, the case remains at the complaint stage, and all claims are as stated by Northwestern Mutual in its September 2, 2025 filing.
