IRS Rules on Per Diems

Business travel can become a headache for the accountant; tracking down receipts, collecting expense reports, and cutting reimbursement checks. When frequent travel is a necessary part of doing business, an easier way to manage travel expenses is to establish a per diem rate. The only problem with going the per diem route is keeping abreast of the tax implications. However, by keeping up to date on IRS rulings regarding per diems, it’s possible to enjoy the benefits of having a per diem rate without tax drawbacks.

One of the biggest IRS rulings on per diems in the last couple years relates to companies with per diem rates above the General Service Administration’s (GSA) set rates. If you are over the limit, carefully document how that money is spent. If all funds are accounted for, then the amount up to the federal limit can be considered travel expenses and the amount over the limit must be considered extra wages. On the other hand, if part of that money is unaccounted for, i.e. the per diem is more than the total cost of documented travel expenses, the extra either needs to be returned by the employee or else the entire amount of the per diem, not just the amount over the maximum, will considered fully taxable wages.

For more information on new rulings as they come out, visit the IRS per diem website and look under “What’s New.” Or, just keep reading this blog. We’ll be sure to keep you informed about the latest per diem news and how it affects your company.

Once the complex tax code is deciphered, having a per diem rate can be an efficient and easy way to compensate employees and contractors for travel expenses.