Per Diem
Per Diem is a corporate world's term that's quite frequently encountered. It's used among employees who travel a lot for work. However, the exact meaning, nuances, and implications of it often remain a mystery to many. The content here aims to explain what exactly is Per Diem. It will talk about its tax implications, how it functions, and more.
What is Per Diem?
In Latin, Per Diem meaning is per day. It is the daily allowance given to employees. It helps to cover the expenses that are incurred during business travels. The allowance remains intended for simplification of the reimbursement process. It offers a daily fixed rate and doesn't itemize each of the expenses. Per Diem rates, they vary based on location as well as the cost of living in the destination country/city.
What is Per Diem Allowance?
Per Diem allowance, it covers 3 primary categories,
- Meals. It covers lunch, breakfast and dinner.
- Lodging. Hotel stays or any other type of accommodations.
- Incidental expenses. It encompasses the range of some smaller costs. It includes transportation, tips, or any other work-related minor expenses. U.S. General Services Administration, or GSA, sets the standard Per Diem rates. It's for domestic travel. The U.S. Department of State establishes international travel rates.
Per Diem Tax Implications
If you wish to know do you pay taxes on Per Diem, generally, it's not taxable income. However, it needs to remain within federal Per Diem rates. Also, employees must offer required substantiation, like location and date of travel.
If Per Diem rates increase the said federal limits, the excess amount is taxable. It's also in cases where employees fail with expense substantiation. It is important for employees and employers to keep accurate records. One must also follow IRS guidelines for ensuring compliance.
How to Pay Per Diem?
It's accomplishable in varied ways. It depends on the policy of the companies. To say, some pay lump sum payments before any trip. Others reimburse the expense after the trip as per the expense report. The advances are quite convenient for the employees. It ensures they have the needed funds when travelling. As for reimbursement, it requires detailed documentation. It is quite precise as it helps to match the expense to the allowance.
What Expenses are Included in Per Diem?
Per Diem covers the range of the travel-related expenses. Some specific inclusions vary according to the employer's policies. The standard inclusions covers the expense of lodging, meals and the incidental costs.
It is quite crucial that employees do understand the Per Diem policy of the company. They must know what's covered. It helps to avoid any out-of-pocket expenses. There are some companies which have some extra categories/specific exclusions. So, it's better to have clear communication with the finance or the HR department.
Conclusion
Per Diem, for sure, is a valuable tool. It helps to manage the travel expenses. It provides a convenient & standard method to cover costs that are incurred on business trips. Understanding its meaning, tax implications, etc., helps employees and employers. It helps to navigate the intricacies of business travel in an efficient way. Further, with accurate record-keeping and clear policies, it's ensured Per Diem is a beneficial part of corporate travel. It aids with smooth transactions. It even reduces the administrative burden of expense management.
Back to Glossary