#PerDiemTaxExempt #EmployerBenefits #TaxQuestions
Understanding Per Diem and Taxes
If you’ve recently been told by your employer that they can put your per diem on your paycheck and ensure it is tax exempt, you might be wondering if this is actually possible. Let’s dive into the details to better understand how per diem works in terms of taxes.
What is Per Diem?
Per diem is a daily allowance provided by employers to cover expenses like meals, lodging, and incidental expenses when an employee is traveling for work. The IRS sets per diem rates based on the location of travel, and these rates can vary depending on the area.
Per Diem on Paycheck
While it is common for employers to provide per diem separately from regular wages, some companies may decide to include per diem in employees’ paychecks. In this case, the per diem amount would be added to your regular wages and then subjected to payroll taxes.
Is Per Diem Tax Exempt?
The tax treatment of per diem can vary depending on how it is handled by your employer. If your employer includes per diem in your paycheck and does not differentiate it from regular wages, it will be considered taxable income and subjected to federal income tax, Social Security tax, and Medicare tax.
Reimbursement for Expenses
If your employer is reimbursing you for expenses like hotel stays but making it tax exempt, it is important to ensure that the reimbursement is for actual expenses incurred on business travel. Reimbursements for legitimate business expenses are generally not considered taxable income.
State-Specific Considerations
Since you mentioned you live in Maine, it is worth noting that each state may have its own rules and regulations regarding per diem and taxes. Consulting with a tax professional or the Maine Revenue Service can provide clarity on how per diem is treated for tax purposes in your state.
In conclusion, while your employer may have good intentions in trying to make per diem tax exempt, it is crucial to understand the tax implications of how per diem is handled. It is always wise to seek guidance from a tax professional to ensure compliance with tax laws and regulations. If you have any further questions or concerns, feel free to reach out to us.
Yeah, you are getting reimbursed.
You’ll get refunded 100%, even if it’s on your pay check.
Yes it’s true. My per diem and expense reimbursements are included on my pay checks. They just exclude those funds from the taxable income so it isn’t taxed.
Yeah I have seen this before. They don’t categorize it as wages so it is not taxed. The IRS is OK with this. You won’t have any problem. Just double-check your paycheck to make sure they did it right.
Yeah, this is pretty common practice. It’s coded in the payroll software as a reimbursement so they don’t withhold taxes and won’t report it to the IRS as income.
Back when paychecks were actual checks, doing it this way (vs. a separate payment for travel reimbursements) saved the administrative costs of cutting two checks with two records in the payroll books.
It is true, get a card with a good hotel points system! If you travel a lot for work they can add up.