HR Support on Business Travel Expenses Rules

Editor's Note: Keep up with regulations on employee business travel expenses!

Rena PirsosOverview: 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:

  • Employees who are not away from home overnight may now be reimbursed for their local lodging expenses as a working condition fringe benefit. The final regulations also create a safe harbor for employees who incur local lodging expenses while they are attending a business meeting, conference, or other business-related activity or function - that means they may be reimbursed tax-free under certain conditions.
  • The IRS clarified the definition of a reimbursement or other expense allowance arrangement involving employees, and the parties among whom a reimbursement arrangement may exist.

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

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Payroll tax laws affecting employee business travel expenses.