Introduction to Per Diem
Per diem is a daily allowance provided to employees for travel expenses, meals, and lodging while on business trips. It is a common practice in many industries, including sales, consulting, and construction.
The per diem rate varies depending on the location, with higher rates for major cities and lower rates for smaller towns. Employers must follow the IRS guidelines for per diem rates to ensure compliance with tax laws.
What Per Diem Covers
Per diem covers a range of expenses, including meals, lodging, and transportation costs. It also includes incidental expenses, such as tips and laundry services.
However, per diem does not cover all expenses, and employees must follow the company's expense reimbursement policy to ensure they are reimbursed for eligible expenses.
Per Diem Exclusions
Per diem does not cover expenses such as entertainment, gifts, and personal items. It also excludes expenses that are not related to the business trip, such as personal travel and vacation expenses.
Additionally, per diem does not cover expenses that are already reimbursed by the company, such as airfare and rental cars.
Tax Implications of Per Diem
Per diem is tax-deductible for employers, and employees do not have to report it as income if it is reimbursed under an accountable plan.
However, if the per diem rate exceeds the IRS guidelines, the excess amount is considered taxable income to the employee.
Best Practices for Per Diem
Employers should establish a clear per diem policy and communicate it to employees to avoid confusion and disputes.
Employees should also keep accurate records of their expenses and submit them to the employer for reimbursement in a timely manner.
Frequently Asked Questions
What is the purpose of per diem?
The purpose of per diem is to reimburse employees for travel expenses, meals, and lodging while on business trips.
How is per diem calculated?
Per diem is calculated based on the location and the number of days spent on a business trip, with rates varying depending on the location.
What expenses are covered by per diem?
Per diem covers expenses such as meals, lodging, and transportation costs, as well as incidental expenses like tips and laundry services.
Can per diem be used for personal expenses?
No, per diem cannot be used for personal expenses, such as entertainment, gifts, and personal items.
Is per diem taxable income?
Per diem is not taxable income if it is reimbursed under an accountable plan, but excess amounts above the IRS guidelines are considered taxable income.
How do I submit per diem expenses for reimbursement?
Employees should submit their per diem expenses to the employer for reimbursement, along with receipts and documentation, in accordance with the company's expense reimbursement policy.