Per diem is paid to employees for meals, lodging, and incidental expenses when traveling as opposed to reimbursing them for their actual expenses. It is a simpler alternative with less paperwork then keeping up with every receipt and documentation for each expense. The federal rate varies in different parts of the country and can be found in Publication 1542 on the IRS website. The maximum per diem rate for Chattanooga is $144 per day, which consists of $56 for meals and $88 for lodging. An employer can choose to pay more or less than the federal rate. However, if they choose to pay more than the federal rate, the excess amount is taxable and should be reported in Box 1 on the employees' W-2s. If per diem is equal to or less than the federal rate, it does not need to be reported on the employees' W-2s and will not affect salaries and wages.
A qualified per diem plan is deductible on the employer's tax return as a travel business expense. Meals and entertainment are still subject to the 50 percent deductible rule even if the employee is reimbursed 100 percent. Employers can reimburse for actual expenses incurred instead of paying the per diem standard rate if the receipts are submitted for those expenses. If you are not using per diem and reimbursing employees' for actual expenses, you should keep all receipts on record to support the tax deduction.
In order for a company to be classified as a qualified per diem plan, they must meet a few requirements. The travel must have a business purpose and the travel expenses should be ordinary and necessary. Second, the employee should be traveling a sufficient distance from their home. The employee must be away from home for longer than an ordinary day's work and could not reasonably be expected to make trip without sufficient time to sleep or rest. Next, the employee assignment cannot last over one year. Finally, the employee must maintain accurate records. The employee should record days away from home, location, and business purpose of the travel.
Ryan J. Hood, CPA | Tax Manager
Ryan has 8 years of experience in public practice. As the Tax Manager, Ryan oversees all tax engagements at J.D. Frost & Company which includes tax planning, filing of tax returns, and tax notices. His expertise is mainly centered in real estate and manufacturing fields along with numerous other areas.
Ryan received a double major in finance and accounting at the University of Tennessee at Chattanooga. He is a member of the TSCPA, AICPA, and in his spare time is a basketball official for the TSSAA.
Ryan lives in the Harrison area with his wife, Rachel, and his 2 boys Landon and Jackson. When not at the office, he enjoys any sporting activity, anything on the lake, and listening to any 90's music.