If your company pays employees to travel, you need to know your options when it comes to reimbursing them for travel expenses.
Under the regular (federal) per diem plan, employees need to provide you with substantiation of the time, place, and business reason for the travel. This method is considered an accountable plan so the reimbursement is not subject to payroll or income tax.
For your company to deduct the travel expenses, the reimbursement cannot exceed the government established maximums (per diem).
The per diem rate includes two parts:
- Lodging expense, not including any lodging tax that may be charged.
- Meals and incidental expense (M&IE), which covers such items as tips and gratuities for bellhops, porters, stewards, and other service providers, laundry and pressing expenses, the cost of mailing items such as travel vouchers, and transportation to and from meals if adequate meals are not provided at the worksite.
New federal per diem rates become effective each year on October 1, and can be viewed on the General Services Administration Web site. By logging onto the GSA Web site, you can find the specific per diems allowable for most destinations. For example, a business trip to Los Angeles includes a maximum per diem of $123 for lodging and $71 for meals and incidentals. Some locations might be listed by county instead of city.
The standard per diem rate for continental United States (CONUS) locations not specifically listed in the GSA tables is $116 ($70 for lodging and $46 for M&IE), according to the IRS.
You can also choose to use the simpler high-low reimbursement method, which establishes maximum travel pay for high-cost areas within the CONUS. These tables are available in IRS publication 1542, Tables 1 and 2.
- Table 1 lists high-cost areas for October 1, 2009 through September 30, 2010 ($258, of which $65 is for M&IE). Areas not listed are eligible for a per diem of $163 ($52 for M&IE).
- Table 2 lists rates for high-cost areas beginning October 1, 2010, through September 30, 2011, with a high-cost per diem of $233 ($65 of which is M&IE), and areas not listed as high cost, at a per diem of $160 ($52 of which is M&IE).
The transition period covers October through December. During that time, if you are using the high-low per diem method of reimbursement, you can choose to use the new rates, which take effect on October 1, or continue with the prior rates. You cannot, however, switch methods during that time.
For example, if you were using the high-low per diem method in September, you must continue to use it for the rest of the calendar year. And, you must use the same rates for all employees uniformly for the rest of the calendar year. If you use the prior rates for one employee, you must use the prior rates for all.
The same applies to employers who use the regular (federal) per diemmethod. You may continue to use the prior rates or change to the new rates when they become effective on October 1. Choices of which rates and which methods to use apply for all employees, for the entire calendar year.