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).
Final IRS regulations:
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
The IRS has issued the "high-low" and "special" federal per diem rates effective for business travel undertaken on or after October 1, 2017, through September 30, 2018.
The General Services Administration (GSA) has announced the per diem rates that apply to the lower 48 Continental United States (CONUS) for the federal government's fiscal year 2018, which begins October 1, 2017, for purposes of business travel reimbursement.
The IRS has issued Notice 2016-79, which provides the 2017 standard mileage rates for business, charitable, medical or moving expense purposes, and the maximum standard automobile cost used to compute the allowance under a fixed and variable rate (FAVR) plan.
The IRS has issued Notice 2016-58 listing the 2016-2017 optional 'high-low' federal per diem rates an employer may use to reimburse expenses incurred by employees who travel on business to locations within the Continental US, and the 'special' federal meals and incidental expenses (M&IE) per diem rates that apply to the transportation industry and the incidental-expenses-only rate.
California employers seeking to provide employees with an overview of its business travel and reimbursement policy and to help maintain reasonable limits on business expenses should consider including this model poilcy statement in their handbook.
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.
To ensure the safety of employees who fly on corporate aircraft, maintain reasonable limits on related business expenses and remain compliant with associated employment tax laws, employers should have a policy in place governing the use of employer-provided aircraft.
An employer may use this policy to help maintain reasonable limits on business expenses and ensure compliance with the employment tax laws. Not all business expenses may be reimbursed tax-free, and even tax-free reimbursements may become subject to withholding if employees do not substantiate their expenses within a reasonable time period.