Tax Reform impacts on new per diem numbers

Business travelers please be advised: the IRS has released business traveler per diem rates for fiscal year 2018-2019 as well as its list of high-cost and lower-cost cities and areas.  Away-from-home business travel is subject to the new rates from Oct. 1, 2018 to Sept. 30, 2019. Generally speaking, if a business traveler’s costs don’t exceed the per diem rate for lodging and meals or meals only, reimbursement for those costs is not treated as taxable income. Go over the limits and the amount must be reported as income for employees.

The per-diem figures are $287 for business travel to areas within the continental U.S. (CONUS) the IRS has designated as high cost, and $195 for travel anywhere else within CONUS. Within those figures are $71 for meals in high cost areas, $60 elsewhere.  There are some vocations, such as traveling performers, transportation industry workers, and others, who have different figures by which they must abide. 

Interestingly, there are no Tennessee locations the IRS lists as high cost despite the fact that Nashville’s hotel rates are today, near the top or at the top, of the country’s most expensive cities in terms of hotel rooms.  Nevertheless, Tennessee didn’t make the list, which is probably a good thing in any case.

Again generally speaking, if an employee’s lodging and meal costs are equal to or less than the federally-set per diem rate for the area, the reimbursement isn’t considered by the IRS to be part of that employee’s income for tax purposes. 

If a flat rate is paid to the employee, a travel expense report from the employee isn’t required. However, if the reimbursement is on an expense basis, to escape taxation the employee must provide a detailed expense report: no report, and reimbursement will be taxable. The expense report must include the trip’s business purpose, the date and place, and all related receipts. Historically, employees could deduct unreimbursed expenses as itemized deductions if the expenses exceeded two percent of their adjusted gross income. This is no longer the case; the Tax Cuts and Jobs Act (TCJA) of 2017 eliminated the deduction for unreimbursed employee expenses.  The theory or expectation is that most taxpayers will just take the TCJA’s higher standard deduction of $24,000 for married filing jointly or $12,000 for single filers.

When reviewing the new per diem amounts employers may want to consider setting up a qualified reimbursement plan if actual travel expenses are going to exceed the listed amounts.  This will enable the employer to take the full deduction. The picture is slightly different for self-employed persons, but only slightly. Self-employed taxpayers can apply per diem rates to the costs only of their meals while traveling.

The six-year-old $5 per-day deduction for tips remains in effect.

Additionally, some cities and areas are designated as high or low cost for only parts of the year. IRS Notice 2018-77 spells out the per diem particulars as well as the list of high cost and low cost locations within CONUS.

If your business has employees on the road, or if you are paying employees for reimbursed expenses, study the new numbers of talk and speak to a business tax advisor or accountant with experience in these areas. It’s better than being dinged by the IRS.           

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This article was originally published in the Knoxville News Sentinel. 

Tagged #JimmyTalk, Small Business, Taxes, Tax Cuts and Jobs Act, Small Business Owner