Money Articles: Per Diem Allowances For Travel

• http://www.irs.gov/publications/p535/ch13.html#d0e12137
• Is documentation required?

You may reimburse your employees under an accountable plan based on travel days, miles, or some other fixed allowance. In these cases, your employee is considered to have accounted to you for the amount of the expense that does not exceed the rates established by the federal government. Your employee must actually substantiate to you the other elements of the expense, such as time, place, and business purpose.

Federal rate. The federal rate can be figured using any one of the following methods. For per diem amounts:

• The regular federal per diem rate.
• The standard meal allowance.
• The high-low rate.

• The standard mileage rate.
• A fixed and variable rate (FAVR).

Per diem allowance. If your employee actually substantiates to you the other elements (discussed earlier) of the expenses reimbursed using the per diem allowance, how you report and deduct the allowance depends on whether the allowance is for lodging and meal expenses or for meal expenses only and whether the allowance is more than the federal rate.

Regular federal per diem rate. The regular federal per diem rate is the highest amount the federal government will pay to its employees while away from home on travel. It has two components:

• lodging expense, and
• meal and incidental expense (M & IE).

Standard meal allowance. The federal rate for meal and incidental expenses (M & IE) is the standard meal allowance. You may pay only an M & IE allowance to employees who travel away from home if:

• you pay the employee for actual expenses for lodging based on receipts submitted to you,
• you provide for the lodging,
• you pay for the actual expense of the lodging directly to the provider,
• you do not have reasonable belief that lodging expenses were incurred by the employee, or
• the allowance is computed on a basis similar to that used in computing the employee's wages (that is, number of hours worked or miles traveled).

Internet access. Per diem rates are available on the Internet. You can access per diem rates at www.gsa.gov.

High-low method. This is a simplified method of computing the federal per diem rate for lodging and meal expenses for traveling within the continental United States. It eliminates the need to keep a current list of the per diem rate in effect for each city in the continental United States.

• Under the high-low method, the per diem amount for travel during 2005 is $204 ($46 for M & IE) for certain high-cost locations. All other areas have a per diem amount of $129 ($36 for M & IE). The high-cost locations eligible for the $204 per diem amount under the high-low method are listed in Publication 1542.

Allowance less than or equal to the federal rate. If your allowance for the employee is less than or equal to the appropriate federal rate, that allowance is not included as part of the employee's pay in box 1 of the employee's Form W-2. Deduct the allowance as travel expenses (including meals that may be subject to the 50% limit, discussed later). See How to deduct under Accountable Plans, earlier.

Allowance more than the federal rate. If your employee's allowance is more than the appropriate federal rate, you must report the allowance as two separate items.

• Include the allowance amount up to the federal rate in box 12 (code L) of the employee's Form W-2. Deduct it as travel expenses (as explained above). This part of the allowance is treated as reimbursed under an accountable plan.

• Include the amount that is more than the federal rate in box 1 (and in boxes 3 and 5 if they apply) of the employee's Form W-2. Deduct it as wages subject to income tax withholding, social security, Medicare, and federal unemployment taxes. This part of the allowance is treated as reimbursed under a nonaccountable plan as explained later under Nonaccountable Plans.

• Publication 1542 - http://www.irs.gov/publications/p1542/ar01.html
• 463 - Travel, Entertainment, Gift, and Car Expenses
• Publication 535 (2005), Business Expenses - ... 535 (2005), Business Expenses Publication 535 ... Expenses Publication 535 (2005), Business Expenses For ... of Contents Publication 535 - Introductory Material Introduction Tax ...

• Per diem faq - http://www.gsa.gov/Portal/gsa/ep/contentView.do?pageTypeId=8203&faq=yes&contentType=GSA_OVERVIEW&contentId=16365
• California Per Diem Rates - http://www.gsa.gov/Portal/gsa/ep/contentView.do?queryYear=2007&contentType=GSA_BASIC&contentId=17943&queryState=California&noc=T
• San Jose
• Max lodging (excluding taxes):110
• M&IE rate:59
• Total max per diem rate:169
• First and last day (75% of M&IE):44.25
• San Francisco
• Max Lodging: 140
• M&IE rate:64
• Total max per diem rate:204
• First and last day: $48
• Santa Cruz
• June 1- Aug 31: 126 /54 / 180 / 40.5