Yesterday, the IRS issued an article containing guidance on per diem expense reimbursements. I’ve never heard of an employer who paid OVER the government suggested per diem allowance without requiring receipts, but the IRS warns that this is a “no no.” Not a big shocker, but I guess it had to happen for them to feel it was necessary to put it in writing.
If you don’t substantiate your expenses, your employer can tack the amount over the per diem rate on to your income. That means you would be required to pay taxes on expenses incurred during business travel. Listen carefully:
DOWNLOAD OUR TRAVEL GUIDES
For reimbursements for expenses for meals and other incidentals associated with business travel, employees get this exclusion for reimbursements for each day of travel up to the federal per diem rates without having to actually substantiate the amounts of the expenses. However, if an employer pays expense allowances that exceed the federal per diem rates, the excess amounts are subject to income tax and employment tax if they are not repaid to the employer, unless the employee actually substantiates all of the expenses covered by the per diem allowance.
For information on the per diem rates, check here. If you’re looking for the mileage rate increase, check here. If your expenses are under the rates listed, you have nothing to worry about. But the rates are pretty low, especially for “low cost” cities so it’s probably worth your time to keep up with your receipts.
This rule, IRS Revenue Ruling 2006-56, becomes effective after December 31, 2006 so be prepared.