Per Diem is an allowance given by employers that is used to cover meals, lodging, and incidental expenses of employees on business trips away from home. There are two types of plans that exist:
- Accountable Plan: a plan where the employee is required to adequately account for any expenses that were used on his or her business trip. Any money issued by the employer that was not spent or cannot be accounted for is required to be repaid back to them. If you spent the entire Per Diem and you use your own funds to account for business expenses, then the amount that you personally spent will be reported on Form 2106.
- Non-Accountable Plan: a plan where the employee is not required to provide proof of expenses that were used. The employer will issue the Per Diem amount to the employee. If the entire Per Diem was not used, then the employee may keep the remaining portion. If the employee used more than the Per Diem allowance, then the remaining portion can be deducted 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.