Do you wonder about the ways to cover expenses for employees who travel? One method is paying per diem. We frequently receive questions on per diem payments and the implications they have for employers and employees.
To give a broad overview, per diem is an allowance paid to employees for lodging, meals, and incidental expenses incurred while traveling. The per diem allowance is paid in lieu of an employee’s actual travel expenses. IRS Publication 1542 provides per diem rate information for areas in and outside of the continental U.S.
There are two per diem rates: one for combined lodging and meal costs, and one for meal costs alone.
There are two per diem rates: one for combined lodging and meal costs, and one for meal costs alone. An employer can use either method for reimbursing employee travel expenses.
One of the main questions for employers is whether or not per diem payments are included in their employees’ wages. Per diem payments are not part of an employee’s wages if (1) the payment is equal to or less than the federal per diem rate, and (2) the employer receives an expense report from the employee. The expense report needs to include information on the business purpose of the trip, the date and place of the trip, and receipts for lodging (if using the meals-only pre diem rate). In general, an employee should file an expense report with their employer within 60 days.
Per diem payments will be taxable to employees under the following circumstances:
- No expense report is filed with the employer
- The expense report filed does not include the date, time, place, amount, and business purpose of the expense
- The expense report is not timely filed with the employer
- A flat amount is given to the employee with no expense report required
- Per diem is paid in excess of the allowable standard federal rate
The examples listed above would be treated as wages to employees, and employment taxes would be due from the employer. Contact our partners at myHRcounsel if you have any questions on per diem payments.