Just What are Per Diems? - Article by TravelTax

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Below is a sneak peak to an article that I will publish in a publication for traveling professionals.

http://www.traveltax.com/Articles/Just%20What%20Are%20Per%20Diem%20Payments.pdf

Just What Are Per Diem Payments
To some veteran travelers, this may be a juvenile question but it is a source of
confusion among new entrants to the world of a mobile professional where one can find
all sorts of opinions to pick from. The following is a brief overview of the rules governing
Per Diems.

Per Diems are Reimbursements
Per Diems are simply reimbursements for logging, meals and incidentals. In a perfect
world, an employee would incur a reimbursable expense, obtain a receipt, give the
receipt to Personnel and get a check in return. Unfortunately, this creates a lot of
paperwork – hence the idea of a per diem reimbursement. By standardizing the
amounts for meals and lodging in each area of the world, receipts are no longer
necessary. By using this alternative receipt table, the company can simply pay this
amount to their employees without an exchange of receipts so long as they have
exercised due diligence in assuring that the employee was away from their tax home
and had not been in the same area for more than 12 months. The IRS allows this
method of reimbursement in lieu of receipts even though the expense may be less than
the published daily rates. The excess is not reported or taxed since the amount spent is
considered to be the amount of the published per diem.

Per Diem Tables are not the Minimum Reimbursement
Per Diem tables are often thought of as the required amounts that an employer must
pay for away from home lodging and meals. Such is not the case. Per Diems are simply
the maximum that an employer can give to an employee without an exchange of
receipts. In fact, an employer can give nothing at all. Another aspect of per diems is the
"all or nothing" treatment. Unless the employer pays directly for lodging or reimburses
for actual lodging expenses, they cannot arbitrarily make the payment a housing only
amount. If that is the case, the payment is considered to be 60% for lodging and 40%
for meals. The 40% meal allocation should also show up as the reimbursement amount
on the employee's income tax return.

Meal Per Diem Nuances
For every day that a mobile worker is away from home overnight on business, they can
claim the per diem meal allowance as published in the tables (IRS Publication 1542). If
the company reimburses for meals at a lesser amount, the employee can deduct the
difference.

Lodging Per Diem Nuances
Only the employer can use the lodging amount in the per diem tables. The employee,
independent contractor and > 2% shareholder of one's company cannot use the lodging
tables – they can only use actual lodging costs as their deduction. This is important
because many mobile workers attempt to use the lodging per diems as a deduction on
their tax returns. It is the source of many audits.

There is a lot to say about more to per diems, but these basic rules can clear a lot of
confusion. Having this information available can help you as you negotiate your next
contract.

Reference Revenue Procedure 2009-47
IRS Publication 463 and 1542
Joseph SMITH EA
Enrolled Agent, Admitted to Practice before the IRS
TravelTax LLC
www.traveltax.com , info@traveltax.com