Understanding Reimbursable Travel Expenses: What's Covered?

Travel expenses refer to the costs incurred by employees while travelling for business purposes. These expenses are reimbursable by employers, and are also tax-deductible. Reimbursable travel expenses include the ordinary expenses of public or private transportation, as well as unusual costs due to special circumstances.

In the US, the Internal Revenue Service (IRS) outlines the rules for tax-deductible travel expenses. According to the IRS, tax-deductible travel expenses include the cost of travel by plane, train, bus, or car between an employee's home and their business destination, transportation costs to and from the airport or station, lodging, meals, laundry, business calls, and other similar expenses.

It is important to note that personal expenses that do not directly relate to business are not reimbursable or tax-deductible. Additionally, there may be specific state and local laws that impact the reimbursement of travel expenses. For example, in California, Illinois, Iowa, Montana, New Hampshire, New York, and Pennsylvania, there are laws requiring employers to reimburse employees for necessary work-related expenses.

To claim tax deductions for travel expenses, it is essential to keep detailed records of all expenses incurred, including dates, amounts, and purposes. This helps ensure compliance with IRS rules and regulations.

Transportation costs

The cost of travel by bus, car, train, or plane from your home to your business destination is covered. This includes the cost of transportation from a train station or airport to your hotel, or from your hotel to your work or meeting location.

If you use your own car for business travel, you can deduct the cost of operating and maintaining your car. This includes business-related tolls and parking. If you use a rental car, you can only deduct the portion of the car used for business purposes.

Rates for Transportation Costs

For car expenses, you can use the standard mileage rate or actual expenses. The standard mileage rate for business travel in 2024 is 67 cents per mile.

The cost of commuting to and from the office does not count as a transportation expense.

Lodging

To be eligible for reimbursement or tax deduction, lodging expenses must meet specific requirements. Firstly, the individual must be travelling away from their residence for business reasons, and there must be a necessity for the overnight stay. The cost of local lodging can be deducted if certain conditions are met. For example, under the safe harbour rules, lodging must be necessary for the individual to participate in a business meeting, conference, or similar activity. The selected lodging should also be reasonable and not lavish, offering no recreational benefits to the individual.

Alternatively, the facts and circumstances test can be applied instead of the safe harbour rules. In this case, the employer must require the employee to take overnight lodging as part of their job, and the lodging must not be extravagant or primarily for the individual's benefit. For instance, if an employer requests that employees stay in a hotel near the workplace to undergo a training programme, the cost of local lodging would meet the deduction requirements.

It is important to note that the Internal Revenue Service (IRS) does not set a standard amount for lodging expense deductions. However, the expenses must be reasonable and necessary. Additionally, due to the Tax Cuts and Jobs Act of 2017, moving expenses are only deductible for active members of the U.S. armed forces who are relocating due to a permanent change of station. Lodging expenses for other individuals are generally non-deductible for the 2018 to 2025 tax years.

Meals

• An employee takes a client out to lunch to discuss new products and services.
• An employee is traveling for work and pays for meals while on the road.

Employees who purchase meals that are connected to company functions should expect to be reimbursed for the total cost of the meal. It is essential for employees to keep all receipts for company records and reimbursement procedures.

The cost of meals while traveling for business is generally reimbursable. This includes meals purchased while in transit, as well as meals purchased at the travel destination.

The standard meal allowance is a set amount that varies depending on the location and time of travel. This amount is intended to cover the cost of meals and incidental expenses. Employees can also choose to claim the actual cost of their meals, but they must keep detailed records and receipts.

When claiming meal expenses, it is important to note that only 50% of the cost is typically deductible. This is because meals are considered a personal expense, and only the business-related portion is eligible for reimbursement.

Some companies may have specific policies or limits on meal reimbursements, such as a daily allowance or per diem rate. It is important for employees to be aware of their company's policies and guidelines regarding meal reimbursements.

Additionally, it is worth noting that meals provided for entertainment purposes, such as business lunches or client dinners, may have different tax implications and may not be fully deductible.

Overall, meals are a common and necessary business expense that is typically reimbursable, but it is important to follow the guidelines set by the company and the tax regulations in your jurisdiction.

Business calls

When it comes to business calls, there are a few things to keep in mind. Firstly, it's important to keep a record of all expenses and save your receipts. Additionally, make sure that you have approval from your company before incurring any expenses, as they may have specific guidelines and limits on what is reimbursable. It's also worth noting that personal calls are not reimbursable, so be sure to separate these expenses. Finally, if you are seeking reimbursement, be sure to submit your expense report in a timely manner as per your company's policy.

Tips

If you are claiming the cost of transportation as a travel expense, you can also claim the tip you paid for that service. For example, if you are claiming the cost of a taxi, you can also claim the tip you paid the driver.

If you are claiming the cost of laundry and dry cleaning as a travel expense, you can also claim the tip you paid for that service.

It is important to note that you can only claim tips that are related to other acceptable expenses. For example, if you pay a tip for a massage at a spa, you cannot claim that tip as a travel expense because the massage itself is not an acceptable expense.

Frequently asked questions