Maintaining accurate records for employee per diem travel expenses can be a struggle. At this point in time, employees are not permitted to claim unreimbursed tax expenses on their personal tax returns, so employers should think about creating appropriate reimbursement plans for employees who incur expenses associated with business travel.
In addition to understanding the amount of money that can be reimbursed, it’s also critical that employers learn about claiming business expenses on taxes using this new, streamlined approach.
Understanding the High-Low Method
If an employer opts to use the high-low method, it would pay employees a flat rate once a year, and the amount varies based on location. Per diem travel expenses are issued in two different amounts depending on whether the employee is traveling in a “high-cost” or “low-cost” area.
For example, if an employee was traveling in Boston, San Francisco, or any other location on the high-cost list, they would receive a high-cost per diem. Any location that’s not listed on this list automatically falls into the low-cost category. It’s important to note that some locations change categories depending on the season.
Per Diem Rates
The annual flat rate for high-cost locations is $287 — $216 for lodging and $71 for food and incidentals. In low-cost locations, the rate for per diem travel expenses is $195 — $135 for lodging and $60 for food and incidentals.
If an employer opts to use the high-low method, it must continue reimbursing all employees the same for travel expenses incurred in the continental U.S throughout the entire year.
Because the high-low method was implemented October 1, 2018, during the last three months of the calendar year, employers must abide by the same method — per diem or high-low — that they used during the previous nine months.
As long as an employer using the high-low method uses the same rates and localities for all employees when issuing per diem travel expenses, it may choose to use either the previous nine months’ former rates and high-cost localities or the current three month’s new rates and high-cost localities.
Claiming Business Expenses on Taxes
Employers using the high-low method may deduct the majority of the flat-rate travel expenses on their tax returns. However, there are some limits on food and beverage expenses. For most employees, employers can deduct 50 percent of meal expenses. The deduction rate is 80 percent for certain types of employees, such as bus drivers or truckers.
For instance, say an employee traveled in a low-cost area, and they were reimbursed the flat rate for per diem travel expenses of $195. The employer would be allowed to deduct $135 for lodging and 50 percent of the $60 food cost ($30), for a total of $165.
Contact Us for Further Information
For assistance implementing an ideal travel reimbursement plan for your company, please don’t hesitate to contact Maxwell Locke & Ritter. We’ll be happy to guide you every step of the way, ensuring that your business remains compliant with IRS rules and regulations while maximizing its bottom line. Call (512) 370-3200 or message us online now.