Is Per Diem Taxable? How Is Per Diem Taxed?

If you work in a capacity that requires you to travel to different locations every day, your employer might be reimbursing your travel expenses.

Per Diem provided to employees usually covers costs such as travel, food, lodging, and certain incidental expenses. Based on the employer’s plan, the place the employee has to travel to the employer provides a certain amount in reimbursement.

However, is per diem taxable? Many employers often wonder whether their per diem reimbursements are taxable or not. If you are worried about the same, go through this article. Here, I have cleared all your doubts related to per diem taxes.

Is Per Diem Taxable?

No, per diem is not a taxable reimbursement. The reason is that it is not included in the employee’s income. So, it is not the income that someone is concerned about. The amount an employee receives as a reimbursement for their expenses depends on a few factors, like the place they are visiting, or the rate the employer follows for per diem.

However, your per diem can be taxable if the following things apply to you as an employee –

• It might be taxable if you did not file an expense report with the employer.
• If the expense report you filed does not contain different data such as date, time, place, and the amount spent for the business purpose.
• If your employer is providing you with a flat expense rate and if they do not require an expense report then the per diem is taxable.
• Also, if the per diem provided by your employer exceeds what the federal government provides, then it might be taxable.

However, if the employers are not reimbursed for their business expenses they can claim their business expenses and the deduction through form number 2106. But this applies if they itemize deductions and the fees exceed the limit of 2% of their adjustable gross income.

What Is Per Diem?

Per diem is the travel expense reimbursement for employees who have to travel for their employer or business purposes. Most employers that require their employees to tour different states or countries provide travel, meals, and lodging expenses. Based on the employer’s preferences and the rate they choose, there are partial per diem or a flat rate. For more information, you can read our other article on per diem.

Before I tell you about per diem and the taxes related to per diem, you must know about the per diem rates.

Per Diem Rates

The General Services Administration (GSA) sets the per diem rate every year. The 2022 data provides the standard rate for per diem and it is set at $59 for meals and incidental expenses. The per diem for lodging for employees was $96 in 2022.

The GSA has also set the per diem rates for many locations that have relatively higher living expenses.

As for the foreign trips the employees need to take, the Department of State is responsible for setting up the per diem rate. The Department also updates this rate every month.

However, specific areas like Hawaii, Alaska, and U.S. territories have their per diem rates established by the Department of Defense.

Do Employers Deduct Per Diem?

Employers can deduct 50% of the per diem expenses related to incidental and meals. Also, the spending related to lodging is completely deductible. But those expenses need to be within the per diem limits. It is necessary for the employer to keep a record of the employees’ expense reports employees file. However, the per diem method simplifies their expenses and bookkeeping because there is no need to keep track of every single expense related to a trip.

However, if you are self-employed, you cannot cut a business travel cost for yourself. Normally, you cannot get per diem payments credited to yourself. As a sole proprietor or self-employed, you can keep track of the exact amount of expenses you have incurred during the business trip. These businessmen can use the incidental and the meals. But the amount up to which they can deduct is only up to 50% of the cost.

Is Per Diem Taxable For Employees?

There is no straightforward answer to this. Different key factors determine whether employees need to pay taxes on per diem or not.

When your company has an “accountable plan,” then the per diem will generally be considered as an income tax. It is usually seen as a reimbursement.

However, there are few conditions under which the employees’ per diem expenses can become taxable income. The IRS has set up a rate for the per diem. If the per diem allowance exceeds that rate, the extra income becomes taxable.

Here is an example –

If the employees are allowed to have a $100 per diem per day, and if they get $120, then the $20 can be seen as taxable income.

Also, as said before, if the company does not provide any accountable plan or if they do not provide necessary expense reports, the per diem expenses become taxable for the employees.

Tax Planning Tips For Beginners

However, if you are still concerned about the taxes on your per diem, then you can seek advice from financial advisors. There are many financial advisors to help you with the area where you are facing a financial problem. They can analyze and help you find solutions and better achieve your financial goals.

Also, if you are a worker working under an employer, then you might be subjected to income tax. But, on the contrary, if you are self-employed, you will be subjected to income tax and self-employment taxes. Also, when planning your budget, you should think about the tax season and how to handle it. Having an estimated amount in mind should help you find the amount you might be liable to pay.

There are many online income tax calculators online. You can use one of them to find what your possible income tax amount is.

Final Words

Per diem may seem like a lot to you. But as a business owner or an employee, it will definitely lower the complexities of bookkeeping and tracking records of employee expenses like travel and such. However, if you feel like per diem is not what you want to follow, then you can reimburse your employees for different business expenses.

Hopefully, you have found the answer to your questions regarding “Is per diem taxable?” but if there are any additional queries you would want us to answer, let us know through the common.

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