Q: In your view, is there a benefit from a corporation perspective to use per diem rates (both for lodging and MI&E) instead of actuals for travel expenses?
Sam
A: Companies, when reimbursing employees for travel away from home, are allowed to issue per diems for meals and incidental expenses, as well as lodging. Click here to see the current rates, which vary by region. Let's get our hands dirty and take a full treatment of this subject...
Those looking to reference IRS data on this should turn to Publication 535: Business Expenses
Per diem rates can be a good alternative to having to account for actual business expenses incurred. However, it isn't as if there's no substantiation required at all. The employee must still account for the time, place, and business purpose of the expense.
There are two basic types of per diem rates: car expenses, and the federal per diem method
Car Expenses
This is best explained in my posting on auto expenses
Per Diem Rate for Lodging, Meals, and Incidental Expenses
The federal per diem rates are posted at the links above. The rate covers lodging, meals, and incidental expenses.
In lieu of using the per diem rate of each city, a business may choose to use the "high-low" rate, with a high rate for selected areas and a low rate for everywhere else.
A business could use just the "meals and incidental expenses" part of the rate if they are paying for lodging under an accountable plan, or believe that the employee is taking care of housing themselves.
Tax Reporting
If the amount given to employees is less than or equal to the federal rate, then the employer need only deduct the cost as a travel expense, with no further reporting required.
If the per diem amount given to employees is greater than or equal to the federal rate, it's a little more complicated. The federal rate is deducted as a travel expense, and reported under Box 12, Code L on the employee's W-2. The amount above the federal level is treated as wages, and is otherwise no different than other wages on the employer or the employee end.
So, which is better?
To me, it comes down to two issues:
- Recordkeeping. If you would rather not have to keep up the strictures of an accountable plan, the lessened burden is a plus. It also tends to cut down on the expenditures of employees
- Cost difference. If you're finding that actual costs incurred far exceed the per diem rates, then it makes more sense to go with actual expenses
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