When employees travel for business, they must substantiate lodging, meals and incidental expenses in order to seek tax-free reimbursement from their employer. Similarly, the employer must meet substantiation requirements to show the travel costs are deductible as ordinary and necessary business expenses.
These substantiation requirements can be met by collecting and providing actual receipts to the employer, or by using an approved per diem rate. When a per diem rate is used, the employee is not required to provide receipts for specific expenses in order to receive reimbursement. Likewise, the employer is not required to obtain receipts from the employee in order to substantiate its tax deduction for business travel expenses. A self-employed individual can also use a per diem rate to substantiate expenses without maintaining receipts. Employers can choose to establish an internal reimbursement policy that provides for a per diem rate at, below, or above the maximum rates published by the federal government. However, any amount above the government rate will be taxable to the employee if not substantiated by an actual receipt.
The maximum per diem allowance rates approved by the IRS are published by various governmental agencies. For travel within the continental United States, the so-called “CONUS” rates are published by the General Services Administration (GSA), and available online at www.gsa.gov. Meanwhile, international rates outside the continental Unites States also known as “OCONUS” rates) are established by the Secretary of Defense and Secretary of State. The Secretary of Defense publishes rates each month for non-foreign localities outside of the continental United States (Alaska, Hawaii, Puerto Rico, and other possessions) on its website www.defensetravel.dod.mil. The Secretary of State publishes rates each month for foreign localities on its website www.state.gov, in “Foreign Per Diem Rates” under the “Travel” icon located at the bottom of the home page.
Please contact us for more information on substantiation requirements or other business accounting issues.
March 20, 2017