Travel per diem is kind of confusing if you’ve never dealt with it before.
This is true both for employees and for employers.
So in this post, you’re going to learn everything you need to know to get started.
We’re also going to point you to some excellent resources that contain more specific and in-depth information to help you figure out exactly where to go next.
First off, let’s start off by defining the term.
What exactly is per diem?
Per diem is basically allowance for lodging, meals, and incidental expenses that’s paid by employers when employees travel for work.
Per diem rates for the lower 48 continental United States are established by the General Services Administration, and rates for international destinations are set by the State Department.
Rates for Alaska, Hawaii, and all U.S. Territories are set by the Department of Defense.
One of the great things about per diem from the employee side is that per diem is not considered ‘wages.’ Therefore, it’s not taxable, as long as employees and employers follow all of the rules and submit the proper expense reports so that the business on the tax end gets seen to in proper fashion.
Now that we’ve defined the term and have generally talked about how per diem is set, it’s time to talk about how it actually works.
Hotel Engine actually published a really helpful in-depth post on this topic, which you can find here.
But let’s break down some of the main points and discuss them.
Keep in mind that you should follow that link and read the full post for a more in-depth breakdown.
But for the cliff notes version, here are the important things to understand about per diem.
Per diem covers meals, lodging, and incidental expenses while traveling.
As long as the expense in question is tied to the employee’s business work objective in some form or fashion, it’s generally covered by per diem.
Here are some examples of things that are generally not covered by per diem:
- Room service
- Entertainment (movies, concerts, etc.)
Per diem generally isn’t taxable.
However, there are some certain situations where it may be.
For example, if a company allows a flat amount for an expenditure that’s more than the rate set forth by the government entity tasked with setting the rates, then yes—that additional amount may be taxed.
It’s also true that per diem may be taxed as wages if the employer doesn’t request (and supply with their tax forms) an expense report for the incidence of per diem.
If you don’t submit expense reports properly, per diem can end up being taxed as extra wages.
In order to avoid this, both the employer and the employee need to do their part to create accurate expense reports that’ll give the IRS everything they need.
To learn a bit more about how to deal with per diem at tax time, check out this post by Investopedia.
But as far as the employee is concerned, you basically need to submit an expense report that includes information like the dates and locations of the trips, and then the business purposes of those trips. Then, per diems must be recorded, and must fall within allowable federal per diem rates.
Yes, to a certain point.
Here’s what Taxslayerpro.com has to say on the topic:
“Employers can deduct up to 50% of per diem spending for meals and incidentals. Lodging expenses are usually completely deductible as long as they are within per diem limits. Employers must retain records of the expense reports, but the per diem method usually simplifies their bookkeeping and deductions since they do not need to track every single expense of the trip.”
At the end of the day, per diem is a great way to simplify travel expenses and the bookkeeping requirements for them for most employees and businesses.
But understanding how to do it correctly is important.
If you’re still struggling to understand how it works, consider hiring a tax professional to help you sort it out.
This can help you to avoid costly mistakes that could set you back at tax time.