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Taxability of Per Diem payments--Nationwide

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  • Taxability of Per Diem payments--Nationwide

    We've actually been doing this for years, but our practice has recently been questioned internally. Better safe than sorry.

    We are a nationwide company headquartered in California. Our non-management staff travels almost constantly, performing work at customers' sites throughout the country.

    Our current practice is to reimburse meals at a flat rate per meal, with no actual receipts required. We treat this as a non-taxable transaction and pay through A/P, along with any other bona-fide travel expenses (receipts are required for non-meals).

    Is the tax treatment correct? Admittedly, and employee could eat less expensively and pocket the difference.

    Most of the employees impacted ARE covered by a CBA. The CBA specifies the amount of reimbursement, but is silent on taxability or form of payment.

    For convenience, we are looking to add all expense reimbursemnts as a line item on the employee's payroll check. I don't see why form of payment would make a difference, but I guess it is best to ask.

    Thanks

  • #2
    Are you using the IRS guide to reimburse meals? While you can pay a flat rate, if it is over the approved IRS rate the difference must be taxed. http://www.irs.gov/pub/irs-pdf/p1542.pdf
    I post with the full knowledge and support of my employer, though the opinions rendered are my own and not necessarily representative of their position. In other words, I'm a free agent.

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    • #3
      Agreed. Also, you might want to look at IRS Publication 463 Travel, Entertainment, Gift, and Car Expenses. There are mandatory Accountable Plan rules (business purpose, substantation, return excess amounts, reasonableness) which must be complied with for any expense reimbursement to be qualified (non-taxable). Per Diem per se is just a safe harbor alternative method for the substantation and return excess amounts sub-rules. Instead of reimbursing actual expenses by receipt and making sure that any excess amounts are returned, the Per Diem acts as a safe harbor method, but only as long as all other Accountable Plan rules are followed.
      "Reality is that which, when you stop believing in it, doesn't go away".
      Philip K. **** (1928-1982)

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      • #4
        Looks like I have a good deal of reading to do. Thank you both for pointing me in the right direction.

        I may be mis-using the term per-diem. In our case, I am referring only to meal re-imbursement. Currently that is $46 per full travel day. This is actually a negotiated amount in the CBA.

        We are just entering re-negotiations. Increasing this amount is one of the union's requests. It may be an interesting discussion.

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        • #5
          You are using the term correctly but you will want to look at the column that is labelled M&IE only for meals. While you can pay a flat rate, again, it depends on where the employee travels whether or not this would be taxable. If the employee travels to Bakersfield, $2 is taxable. If they travel to Brentwood where the rate is $49 per day, none of it is.
          I post with the full knowledge and support of my employer, though the opinions rendered are my own and not necessarily representative of their position. In other words, I'm a free agent.

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          • #6
            Originally posted by ElleMD View Post
            If the employee travels to Bakersfield, $2 is taxable. If they travel to Brentwood where the rate is $49 per day, none of it is.
            All other things being equal (having lived in California for the first 40 years of my life), I'd rather travel to Brentwood than Bakersfield. I'm surprised it's that high in Bakersfield.
            I don't respond to Private Messages unless the moderator specifically refers you to me for that purpose. Thank you.

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