What is Per Diem?
Per diem is an allowance given by an employer that is used to cover meals, lodging, and incidental expenses of employees on business trips away from home. Whether or not these payments are taxable depends on if the reimbursement is paid under an accountable plan or a nonaccountable plan.
Accountable vs Nonaccountable
Accountable Plan
- The expenses must have a business connection, i.e., paid while performing services as an employee of the employer;
- The expenses must be adequately accounted for within a reasonable period of time;
- Any money issued by the employer that wasn't spent or cannot be accounted for is paid back within a reasonable period of time;
- Personal funds used for business expenses beyond the per diem are reported on Form 2106.
Nonaccountable Plan
- The employee is not required to provide proof of how the funds were spent.
- Any unused per diem does not have to be paid back to the employer.
- Personal funds used for business expenses beyond the per diem are reported on Form 2106.
- The employer will report the total in box 1 as wages on the Form W-2 if there is any reimbursement or other expense allowance paid to the taxpayer.
Reporting on Form 2106
Form 2106 may only be used by the following taxpayers:
- Armed Forces reservist
- Qualified performing artist
- Fee-basis state or local government official
- Employee with impairment-related work expenses
If the taxpayer is required to report their per diem on Form 2106, there are two options, a 50% limit and an 80% limit. Generally, the taxpayer can deduct 50% of their business meal and entertainment expenses, including meals incurred while away from home on business. However, if the taxpayer is an employee subject to the DOT hours of service limits, that percentage is increased to 80% for business meals consumed during, or incident to, any period of duty for which those limits are in effect.
In order to report the per diem, you will need to determine if the allowance is greater than or less than the federal per diem rate. The current per diem rates in the continental United States are here at the GSA website. If the total amount paid by the taxpayer was less than the federal per diem rate, no amount is reported on the tax return. If the allowance was more than the federal rate, then the employer will include this amount up to the federal rate in box 12 of Form W-2. This will be reported on the tax return as if it is wage income.
To enter per diem on Form 2106 in the individual income tax return in TaxSlayer Pro, from the Main Menu of the return select:
- Deductions
- Itemized Deductions
- 2% Deductions & Job Expenses (2106)
- Employee Business Expenses - 2106 - For a return being filed MFJ, select Taxpayer or Spouse, then enter their occupation, and finally complete the rest of the form.
Truck drivers who are self-employed or owner-operators will normally receive a Form 1099-MISC for per diem they are paid.
Note: This is a guide on entering per diem in the individual income tax return in the TaxSlayer Pro program. This is not intended as tax advice.
Additional Information:
Instructions for Form 2106, Employee Business Expenses
Publication 463, Travel, Entertainment, Gift and Car Expenses