Spring 2008 issue of Horizons

INDUSTRy u

Contractors

Use of Per Diems A per diem is an allowance for travel, lodging, meals and incidental expenses that is calculated based on the number of days of an employee’s travel. An employer can reimburse employees under an accountable plan based on travel days, miles or some other fixed allowance. The employee is considered to have accounted to the employer the amount of the expense that does not exceed the rates established by the federal government. By using a per diem allowance, the employee is not required to submit receipts to the employer to meet the accountable plan rules. However, employees are still required to substantiate the time, place and business purpose of the trip. Federal Per Diem Rates: The federal rate can be figured using one of the following: The regular federal per diem rate is defined as the highest amount the federal government will pay to its employees while away from home on travel. Rates differ depending upon the travel location. The federal government publishes the rates for each location annually. The published rates are effective for the period from Oct. 1 of one year to Sept. 30 of the next. The rules allow employers to use the same rates for the entire calendar year. The rates for 2008 can be found in IRS Revenue Procedure 2007-63. The standardmeal allowance is themeals and incidental expenses portion of the regular federal per diem rate. The standard meal allowance is the only per diem allowed if the employer pays for or reimburses actual lodging expenses or the employee is not reasonably believed to have incurred any lodging expenses. Whether the employer uses the regular federal per diem rate to cover all expenses (including lodging) or the standard meal allowance, the amount of the reimbursement that represents the meals and incidental expenses is subject to the 50 percent disallowance of meal and entertainment expenses. The high-low method is a simplified method of computing the federal per diem rate for lodging and meal expenses. It eliminates the need to keep a current • • •

list of the per diem rate in effect for each city. Instead, each travel location is considered either a high-cost or low-cost destination, and there are two levels of per diems depending on the travel destination. The 2008 high and low per diems are:

Lodging Maximum Expense M&IE Per Diem Rate Rate Rate

$179

$58

$237

High-cost locality Low-cost locality

$107

$45

$152

The high and low-cost destinations for 2008 can be found in IRS Rev. Proc. 2007-63.

Allowance Not Equal to Federal Rate If the allowance for an employee is less than or equal to the appropriate federal rate, the allowance is treated as reimbursed under an accountable plan and is not included in the employee’s taxable wages. If the allowance is greater than the federal rate, the amount up to the federal rate is excluded from the employee’s taxable wage under an accountable plan but reported to the employee in box 12 (code L), Form W-2. Incidental Expenses Expenses included in the rate for meals and incidental expenses are: Fees and tips given to porters, baggage carriers, bellhops, hotel maids and others. Transportation between places of lodging or business and places where meals are taken, if suitable meals cannot be obtained at the temporary duty site. Mailing costs associated with filing travel vouchers and payment of government charge card billings. • • •

21 u spring 2008 issue