![]() ![]() Consider the Employee’s “Tax Home”: Per diem allowances are qualified as long as employees are traveling a sufficient distance away from their tax home.Under the rules, employers can provide a per diem that covers lodging, meals and incidental expenses, or meals and incidental expenses only. Have a Business Purpose: Qualified per diem allowances may be used only when an employee incurs, or is reasonably expected to incur, travel expenses that are ordinary and necessary business expenses, for meals and incidental expenses in connection with the performance of the employee’s services.For a plan to be properly classified as a qualified per diem plan, the following do’s and don’ts should be taken into consideration: Failure to properly administer a per diem plan that is intended to be qualified will have adverse tax implications for both employees and the employer. A per diem plan must be a qualified per diem plan in order for the per diem payments to be paid tax-free. Merely implementing a per diem plan does not in and of itself make such payments tax-free to employees. Additionally, qualified per diem reimbursements generally aren’t subject to income or payroll tax withholding and are not reported on an employee’s Form W-2. Instead, the company simply pays the allowance to the employee, who must substantiate the time, place and business purpose of the underlying travel. Receipts are usually not required under the per diem method. The General Service Administration publishes annual rates for the continental United States, while the Department of State publishes annual rates for foreign countries.Ī principal benefit of using per diem rates is the more lenient recordkeeping requirements. Instead of reimbursing employees for their actual expenses while traveling, employers may pay them a per diem amount, based on IRS-approved rates that vary by location. Fortunately, the IRS offers a simpler alternative - per diems. Oftentimes, there are administrative delays or questions about the business purpose of an expense item. It usually involves employees collecting receipts as they travel and maintaining records that note the time, place and business purpose of each expenditure. ![]() Structured Finance & Capital Equipment ValuationĢ015-Issue 7-Reimbursing and substantiating business travel expenses can be cumbersome and time-consuming. Portfolio Company Performance Improvement Merger, Acquisition & Divestiture Services ![]()
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