Do you know that the IRS has not changed its policies on gifts? That any business gift that costs more than $ 25 is taxable to the extent if exceeds that threshold? That is has been in place since 1981- which means at the very least the IRS should have changed the deductible limit to $ 66.
After all, for non-stockholder (or non-partner) business entities, the requirement for receipts has (finally) increased from $ 25 to $75. That means an employee, who is not an officer, owner, or partner of the company can file an expense report (according to the IRS regulations; many companies differ in their policies), but only include receipts for those items exceeding $ 75. The one exception is a receipt for lodging is always required. (Now, I would like you to tell me where you can find lodging for less than $ 75!)
There are a few other issues that make travel reimbursement documentation a little simpler, still.
Every September (OK, maybe not this year, as you will see), the US government (the GSA, Government Services Administration) publishes (on the web; there no longer is a distributed printed version) per diem rates for the continental US (CONUS) and other destinations (OCONUS). These rates, however, apply only when someone is traveling OVERNIGHT for business.
The IRS (IRC Sec 274(d)) also has approved lodging, meals, and incidentals- primarily for those in the transportation industry. Of course, the last issuance covered FY 2017 (October 2016 start). (That document is IRS 2016-58, if you are interested.) It lists the reimbursement rates for meals and incidentals at $ 63 in the US and $ 68 for outside the US. Not surprising, their adjustment for higher cost cities is still lower than the CONUS and OCONUS rates. I don’t know why anyone outside the transportation industry would use them!
If using the Per Diem method, the employee is required to provide the date(s) of travel, the place(s), and the business purpose. Should an employer use these approved per diem rates, then documentation for the expenses of food, lodging, and incidentals are not required.
As of 1 October, 2017, the lower costs regions of the US accrue $ 144 of per diem charges. In particular, it means $ 51 for meals AND incidentals, with $ 93 for lodging. (This covers most of the 2600 US Counties. For other cities (NY, DC, LA come to mind immediately), there are higher rates. The highest per diem rate applies in Aspen (Pitkin County), Colorado- but only during the peak months of 1 December to 31 March. ($498 is that rate, by the way.)
The rules allow you to pay per diem (totals) or per diem meals. You cannot use the per diem for lodging and the actual costs for the meals. (You CAN always use DOCUMENTED real costs for lodging, incidentals, and meals.)
As of right now, the OCONUS (Outside the CONtinental US) rates have not been published. Yes, I know it’s October.
The problem with this per diem method is that the employee is often shortchanged. For example there are six potential meals/incidental rates across the US- $ 51 (the most common, listed above), $ 54, $ 59, $ 64, $ 69, or $ 74. Now, I know I keep kosher, so my costs are always higher- but my employees are hard-pressed to find 3 meals (not including alcohol) for $ 74 or less in Manhattan- and that doesn’t include incidentals. (Let’s start with the fact that the daily paper in NY City costs $ 2.50!)
Sure, the per diem rate for New York (the whole city) is $ 291- but that only September to December- and it drops to $ 164 in January and February. You be sure to get me that hotel for $ 93 in New York City!
interesting as always, Roy! though i never needed to travel for work and my DH does (but not sure of how perdiem applies to his business travel), this is truly informative..
Glad to oblige, Vidya.
Oh, and happy Diwali!
As with the rules over here, not designed for the real world or the average man. If you do hear of that $93 hotel, please let me know. I’ll do the same for London 🙂
I actually know a few- but they cater to truckers- who only spend 4 hours. (There are few others that cater to another type of “employee”, but I prefer clean sheets….)
I was pretty sure I was swimming in all the numbers but then you said that the employee gets shortchanged which I had been thinking, so that means I got it. Yay!
Thanks for that laugh, Jeanine.
When I first started reading your comment, I thought you were going to tell me you were swimming in my pool. (I knew I hadn’t seen you!)
Thanks for the breakdown Roy! I’ve always wondered why meals are reimbursed when traveling since we have to eat whether traveling or at home.
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First of all, Martha, when we eat at home, it’s cheaper. We buy raw food (one hopes) and prepares a meal. And, when we are traveling, that means we are advancing the cause of our employer. We should never be penalized for that- not rewarded, necessarily, above and beyond our compensation, but recompensed for our needs while traveling. Hence, hotel, meals, and incidentals are covered – and if reimbursed at exactly what we paid, those funds are not taxable income to us.
Roy, wow. The per diem rates have gone up since I worked for the Army Corps of Engineers. At that time, we got a government rate of $25 a night in key hotels. I think, even at the New Otani Hotel in LA. Can you believe the $25 limit on gifts? Oh my. Thanks for a cogent post.
Thanks, Kebba. And, you are right- that $ 25 gift limit still applies from when the hotel rate was $ 25. You can see the stupidity of the system!
Since my husband retired we haven’t had to think about this anymore. We did when he was working on contract in the aerospace industry and had to travel. Most of his expenses were in the suburbs of Boston and Seattle.
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That would be true, Barbara. And, the other issue, is that if you were a solo-entrepreneur, you couldn’t use these per diems, either- the government demands full documentation. This only applies to employees (those paid via a W-2…)