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Per Diem Allowancesby Paula N. Singer
Employers are allowed
to exclude from income an employee’s business-related travel expenses as a
working condition fringe benefit under Section 132 when the amounts are
paid or reimbursed under an accountable plan. To be excluded from income,
the business-related travel expense amounts must be substantiated by
receipts for actual expenses or direct payments to vendors. The IRS
provides alternative substantiation rules in Revenue Procedure 2009-47
[Oct. 19, 2009] (updated annually) under which business-related travel
expenses may be deemed substantiated by a per diem allowance in lieu of
actual expenses.
Amounts that exceed the allowable per diem amount for the location are treated either as wages or self-employment income for tax purposes (depending on the relationship of the worker to the organization), unless the worker otherwise substantiates all of the expenses covered by the per diem allowance. Two
Substantiation Methods Under the standard federal rate method, an employer may pay its employees a rate for lodging, meals, and incidentals, or for meals and incidental expenses only (M&IE), while they are traveling away from home to a particular location. The rate, which varies by location and time of year, is the highest rate that the federal government pays to its employees. The high-low rate method eliminates the need to keep a current list of per diem rates for each location. Locations indicated as high-cost by the IRS are eligible for the high-cost rate - $258 ($65 M&IE) per diem, effective October 1, 2009. For travel on or after October 1, 2009, the per diem for all other localities is $163 ($52 M&IE). The M&IE rate must
be prorated for partial days of travel under both methods. Independent
Contractors The IRS revenue
procedure provides an optional method for employees and independent
contractors who are not reimbursed when computing the amounts for business
meals and incidental expenses (M&IE), or for incidental expenses only
if no meal expenses are paid or incurred, while traveling away from home.
Sources of Per
Diem Rates
Paula N. Singer, Esq. chairman of Windstar Technologies, Inc. and partner in the tax law firm, Vacovec, Mayotte & Singer, Newton, MA, has over 25 years of experience providing advice and compliance services to employers on cross-border employment matters. She is also the editor of "US Tax Compliance For Immigrants And Employers: The Lawyer's Complete Guide". To learn more, see: http://www.ilw.com/store/tax.shtm. For more information, visit www.windstar.com. For additional information, call 1-800-259-6398 or email: info@windstar.com.
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