What happens if a company pays an employee a per diem when they are on the road? For example, a consultant might work for a company which pays a Per Diem while the consultant travels on the road. This amount might varies by the location (usually ~$40 / day).
Is a per diem paid by company taxable?
The amount is simply to cover food and misc. expenses (dry cleaning) while on location. The employee will generally not itemize the expenses or submit receipts for these expenses and keep the remainder of the per diem as cash. However, flights, cabs, rental cars, hotels are all itemized expenses that would be submitted to the company for reimbursement.
Per Diem Payment Example
The tax view is that per diem is to pay for expenses, such as meals hotels and the such and are not income, if the company reports it as income, then an employee needs to keep receipts to use as deductions.
On an employee’s W2 form it shows specifically what the earnings are. Actual per diem will be shown as an expense account payment and should not be listed as income. Now per diem should be an an amount to cover hotel bills, and food bills. Some companies do that instead of having employees fill out detailed expense reports.
As shown above, there are two main types of per diem plans from a tax perspective. In an accountable plan, detailed expenses reports are required to track the actual expenses incurred while working. These payments are in fact reimbursements for expenses incurred and are NOT taxable. In an non-accountable plan, a per diem amount is paid as part of income and the recipient is not required to account for his expenses.
The recipient has to try to offset that additional income by filing Form 2106 and deducting the income as an itemized deduction on the Miscellaneous Deductions portion of Schedule A. This would be filed when an individual files their tax return and software such as TurboTax should be able to accurately state the correct tax treatment of a per diem paid by an employer.