Travel Expenses: Per Diem Deductions Explained

Per diem is a daily allowance paid by employers to their employees to cover travel expenses. The term is derived from the Latin per diem, meaning by the day or for each day. Per diem rates are set annually by the General Services Administration (GSA) for destinations within the Continental US. The Department of Defense sets the non-foreign rate for Alaska, Hawaii, and US territories, while the State Department establishes the foreign rate for anywhere outside the US. Per diem rates vary by location, with major cities typically having the highest rates. So, are per diem travel expenses deductible?

Per Diem vs. Stipend

Per diem and stipends are both forms of reimbursement for employees who travel for work. However, there are some key differences between the two.

Per diem, meaning "per day" in Latin, is a fixed daily allowance paid to employees to cover their expenses while on a business trip or assignment. It is intended to reimburse employees for their lodging, meals, and incidental expenses. Per diem rates are set annually by the General Services Administration (GSA) for destinations within the continental US. Non-foreign rates are set by the Department of Defense, while foreign rates are established by the State Department. Per diem rates can be tied to daily lodging, meals, miles driven, and incidental expenses. The GSA breaks down per diem rates into two categories: meals/incidental expenses (M&IE) and lodging. Per diem rates vary by location and can change seasonally, especially in tourist areas during peak season.

On the other hand, a stipend is a fixed amount of money paid to an employee on a regular basis, such as monthly or weekly, or as a one-time payment for a specific project or assignment. Stipends are often used in academic and research settings to support the living expenses of students or researchers. While stipends can also be used to cover living expenses, they are typically less rigidly calculated and are intended for more generic purposes. Stipends are usually untaxed, giving recipients more control over how the money is spent.

In the context of travel nursing, a stipend, or M&IE stipend, specifically refers to the meals and incidental expenditure portion of the per diem rate. The other component of per diem is lodging. The M&IE stipend can be a source of confusion for travel nurses due to varying terminology and payment methods used by different agencies. Some agencies interpret the GSA per diem rates to mean they can pay a certain amount for each day a nurse works, while others interpret it to mean they can pay a daily rate for every day a nurse is away from home, regardless of whether they are working.

In summary, per diem and stipends are both forms of reimbursement for employee expenses, but per diem specifically refers to a daily allowance for travel expenses, while stipends are typically less rigidly defined and can be used for more general purposes. Per diem rates are set by government agencies and vary by location, while stipends are often untaxed and give recipients more flexibility in how the money is spent.

Per Diem Mileage Rates

The purpose of the per diem mileage rate is to reimburse employees for costs they incur when using their personal vehicles for business purposes. This rate simplifies the reimbursement process by providing a fixed rate per mile, eliminating the need for detailed calculations of depreciation, gas use, oil use, and other vehicle-related expenses.

The General Services Administration (GSA) sets per diem rates for destinations within the Continental US. These rates are used by employers to reimburse employees for daily expenses such as lodging, meals, and incidental costs incurred during business travel. The GSA rates are updated annually and become effective on October 1st, the start of the federal government's fiscal year.

It is important to note that per diem payments are typically non-taxable as long as they do not exceed the maximum federal per diem rate. However, if the per diem amount surpasses the allowable rate, the excess is treated as taxable income and is reported to the IRS.

Per Diem and Taxes

Per diem is a Latin term that means "per day". It is a fixed amount used to reimburse employees for daily expenses incurred during business-related travel. These expenses may include lodging, meals, and incidental costs. The General Services Administration (GSA) sets per diem rates annually for destinations within the Continental US. The Department of Defense establishes rates for non-foreign areas outside of the Continental US, including Alaska, Hawaii, and US territories. Meanwhile, the State Department determines rates for foreign travel.

Per diem rates are typically divided into two categories: meals and incidentals (M&IE) and lodging. The M&IE category covers meals, room service, laundry, dry cleaning, and tips for service providers. The lodging category includes hotels, motels, inns, resorts, and apartments. Per diem rates vary depending on the geographical location and cost of living in the travel destination.

Now, how does per diem relate to taxes?

Per diem payments are generally not considered wages and are therefore non-taxable. However, certain conditions must be met to avoid taxation. Employees must submit an expense report that includes the dates, location, and business purpose of the trip. Additionally, the per diem rate must not exceed the allowable federal per diem rate set by the GSA. If the per diem payment is higher than the GSA rate, the excess amount will be treated as wages and will be subject to income tax withholding and payroll taxes. This excess amount will be reported by the employer on the employee's W-2 form.

It is important to note that employees who do not receive reimbursement for their business travel expenses can claim these expenses as deductions on Form 2106. However, this is only applicable if they are itemizing deductions and if their expenses exceed 2% of their Adjusted Gross Income.

For employers, per diem can simplify their bookkeeping and deductions. They can deduct up to 50% of per diem spending on meals and incidentals. Lodging expenses are usually fully deductible as long as they fall within the per diem limits. Employers must retain records of expense reports but do not need to track every single expense incurred during the trip.

Per diem rates may change annually, and the tax laws surrounding them can be complex. It is always recommended to consult a qualified tax specialist if you have questions or concerns about your company's per diem policy or your own travel-related expenses.

Per Diem Reimbursement

Per diem is a daily allowance paid to employees to cover costs incurred while on a business trip. The term comes from the Latin "per diem", meaning "by the day" or "per day". Per diem rates are set each year by the US General Services Administration (GSA) for destinations within the Continental US. The GSA breaks per diem rates into two categories: meals/incidental expenses (M&IE) and lodging.

The meals and incidental expenses (M&IE) category covers all meals (breakfast, lunch, and dinner), room service, laundry, dry cleaning, pressing of clothing, and fees and tips given to people who provide services, such as food servers and luggage carriers. The lodging category covers establishments that offer overnight stays, such as hotels, motels, inns, resorts, and apartments. A separate per diem rate is set for both M&IE and lodging for each location. Per diem rates for meals and lodging are based on geographical location.

The GSA establishes the per diem reimbursement rates that federal agencies use to reimburse their employees for subsistence expenses incurred while on official travel within the continental US (CONUS), which includes the 48 contiguous states and the District of Columbia. The US Department of Defense (DOD) establishes rates for travel in non-foreign areas outside of CONUS, which includes Alaska, Hawaii, and US territories and possessions. The US Department of State establishes rates for travel in foreign areas.

Per diem rates can be tied to daily lodging, meals, miles driven, and incidental expenses. Companies may prefer per diem for its simplicity and equity, although it often results in overcompensating or undercompensating employees. Per diem eliminates the need for employees to track and submit receipts for individual expenses, reducing the administrative burden on both the employee and the employer. It can also simplify the tax reporting process, as it is safer and more straightforward than potentially being non-compliant with non-allowable actual expenses.

Per diem rates are based on an area's cost of living. For example, per diem rates in large cities such as Chicago, New York, and Los Angeles are higher than in non-metropolitan areas because goods and services in larger cities are generally more expensive. Lodging rates can also vary by month in response to supply and demand. The highest lodging per diem in New York City, for instance, coincides with autumn, the season that attracts the most tourists and business travellers.

Per Diem for Lodging

Per diem is a Latin term that means "per day". It is a fixed amount used to reimburse employees for daily lodging, meals, and incidental expenses incurred during business-related travel. The U.S. General Services Administration (GSA) establishes the per diem reimbursement rates for federal employees travelling within the continental U.S. (CONUS), which includes the 48 contiguous states and Washington, D.C. The GSA website provides a lookup tool to find the per diem rate for a specific city, county, or state.

The GSA breaks down per diem rates into two categories: meals/incidental expense (M&IE) and lodging. The lodging category covers the cost of overnight stays at hotels, motels, inns, resorts, and apartments. The rates are based on the geographical location of travel and vary by month in response to supply and demand. For example, the per diem rate for lodging in Atlanta for the 2024 fiscal year is $173, while in Chicago, it ranges between $213 and $233 depending on the month.

Lodging taxes are not included in the CONUS per diem rate, and federal travellers are required to provide a tax exemption certificate to lodging vendors to exclude state and local taxes from their hotel bills. Per diem rates for non-foreign areas outside of CONUS, such as Alaska, Hawaii, and U.S. territories, are set by the Department of Defense, while rates for foreign travel are established by the State Department.

Companies may prefer the per diem system for its simplicity and equity, although it can sometimes result in overcompensation or undercompensation of employees. Per diem eliminates the need for employees to track and submit receipts for individual expenses, reducing the administrative burden on both the employee and the employer. It also allows employers to establish a predictable travel budget and avoid unexpected expenses.

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