Are meal penalties taxable?

Employers in California are subject to penalties under Labor Code section 203 if they fail to pay an employee who quits or is terminated in a timely manner. These penalties are referred to as waiting time penalties. The IRS memorandum states it only applies to waiting time penalties and, specifically, does not apply to meal and rest period payments that are made when an employer fails to provide an employee a meal or rest period (one additional hour of pay for each day that the meal or rest period is not provided).

Since the meal and rest period payments are essentially additional compensation for the employee performing additional services during the period when the meal and rest periods should have been provided, those payments would be wages for federal employment tax purposes.