ProWeb: 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 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.

If you are required to report this on Form 2106, there are two options, a 50% limit and an 80% limit. Generally, you can deduct only 50% of your business meal and entertainment expenses, including meals incurred while away from home on business. However, if you were 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. To find the current Per Diem Rates in the continental United States click here. If the total amount paid by the taxpayer is 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 W2. This will be reported as if it is wage income.

To enter per diem on Form 2106, from the Main Menu of the Tax Return (Form 1040) select:

• Deductions
• Itemized Deductions
• Employee Business Expenses
• Enter the information on the Form 2106 - Employee Business Expenses Menu

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 into the TaxSlayer Pro program. This is not intended as tax advice. Refer to the Additional Information below.

Additional Information:

Instructions for Form 2106, Employee Business Expenses

Publication 463, Travel, Entertainment, Gift and Car Expenses