Overview: With the frequency of business travel today, employers must keep up with ever-changing regulations governing reimbursement of employee business travel expenses to avoid subjecting employees to otherwise unnecessary payroll taxes and having the employer's entire reimbursement plan being deemed a taxable nonaccountable plan.
Employees may generally be reimbursed, tax free, under Internal Revenue Service (IRS) regulations for the reasonable business travel expenses they incur, such as meals and lodging. However, under the IRS's accountable plan rules, if employees do not substantiate their expenses within a reasonable time period, the expenses do not have a business connection, and employees do not return excess reimbursements within a reasonable period of time, even potentially tax-free reimbursements become subject to withholding for federal income taxes and employment taxes (i.e., Social Security and Medicare (FICA) taxes, and federal unemployment (FUTA) taxes).
Proposed IRS regulations that employers may rely on until finalized:
IRS revenue ruling illustrates the accountable plan rules: The IRS released a revenue ruling illustrating various types of plans that will be deemed nonaccountable plans, and therefore fully taxable, for failure to meet the business connection requirement of the accountable plan rules - one involved an employer's mileage reimbursement plan, and another involved a per diem plan, among others.
Author: Rena Pirsos, JD, Legal Editor
In Notice 2015-2, the IRS has provided much anticipated special administrative procedures applicable to fourth-quarter 2014 Form 941, Employer's Quarterly Tax Return, and 2014 Form W-2, Wage and Tax Statement, for employers that allowed employees to defer more than $130 a month for mass transit benefits in 2014.
The IRS has adopted as final regulations that clarify proposed regulations issued in 2012 allowing employers to reimburse employees who are not away from home overnight for their local lodging expenses as a tax-free working condition fringe benefit (rather than a taxable personal expense) under the Internal Revenue Code.
The IRS has issued Notice 2014-57 announcing the 2014-2015 list of "optional high-low" federal per diem rates that employers may choose to use instead of the standard federal rates issued by the General Services Administration to reimburse expenses incurred by employees who travel on business to locations within the Continental US. The IRS also has issued the special federal meals and incidental expenses per diem rates that apply to the transportation industry and the incidental-expenses-only rate.
Employers seeking to advise employees of when they will provide reimbursement for business travel and help employees maintain reasonable limits on business expenses should consider including this model policy statement in their handbook.
The General Services Administration has released its annually updated list of federal maximum per diem rates that employers may use to reimburse expenses incurred by employees who travel on business to locations within the Continental United States (CONUS). The rates are effective for travel undertaken on or after October 1, 2014.
The US Department of Transportation has released the aircraft terminal charge and standard industry fare level (SIFL) mileage rates for the second half of 2014. The rates are used by the Internal Revenue Service to determine the value of noncommercial flights on employer-provided aircraft under the aircraft valuation method for withholding tax purposes.
The Taxation of Employee Compensation section of the Employment Law Manual has been updated in the Employer-Provided Aircraft subsection to include the terminal charge and standard industry fare level (SIFL) mileage rates for the first half of 2014.
The US Department of Transportation has released the terminal charge and standard industry fare level (SIFL) mileage rates for the first half of 2014.
Several Payroll sections of the Employment Law Manual have been updated for 2014.
The Taxation of Employee Compensation section of the Employment Law Manual has been updated in the Per Diem Allowances subsection with the 2013-2014 federal per diem rates that employers may use to reimburse expenses incurred by employees who travel away from home on business to locations within the Continental US.
Payroll tax laws affecting employee business travel expenses.