Can employee travel per diem be used for temporary assignments and long-term business travel?
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Yes, employee travel per diem can be used for temporary assignments and certain types of long-term business travel, but there are important limitations and requirements under the Internal Revenue Code, Treasury Regulations, and related IRS guidance.
1. Temporary Assignments and Per Diem Eligibility
General Rule:Per diem allowances are permitted for employees who are "traveling away from home" in the pursuit of a trade or business, as defined in IRC §162(a)(2). To qualify, the travel must require the employee to be away from their tax home substantially longer than an ordinary workday and require sleep or rest to meet the demands of work while away from home.
Temporary vs. Indefinite Assignments:- Temporary Assignment: If the assignment is realistically expected to last (and does in fact last) for one year or less, it is considered temporary. Per diem allowances can be used for such assignments, and the related travel expenses (including per diem) are deductible or excludable from income if paid under an accountable plan.- Indefinite Assignment: If the assignment is realistically expected to last for more than one year, or if at any point it becomes clear it will last more than one year, the location of the assignment becomes the employee’s new tax home. In this case, per diem allowances are no longer excludable from income, and related travel expenses are not deductible.
Supporting Authority:- IRC §162(a)(2) allows a deduction for travel expenses, including per diem, only while "away from home" in pursuit of a trade or business, but specifically states: "the taxpayer shall not be treated as being temporarily away from home during any period of employment if such period exceeds 1 year".- 41 CFR §301-11.601 and IRS Publication 463 both reinforce that once an assignment is expected to exceed one year, the employee is no longer considered temporarily away from home, and per diem is not excludable.
2. Long-Term Business Travel
Assignments Exceeding One Year:- If an employee is assigned to a single location for more than one year, or it becomes clear the assignment will last more than one year, the assignment is considered indefinite. The employee’s tax home shifts to the assignment location, and per diem allowances for that location become taxable income and are not deductible.- All per diem and travel reimbursements paid after the date it is recognized that the assignment will exceed one year are taxable to the employee.
Special Federal Employee Exception:- There is a narrow exception for certain federal employees involved in federal crime investigations or prosecutions, who may remain eligible for per diem even if the assignment exceeds one year, provided they are certified by the Attorney General.
3. Accountable Plan Requirements
For per diem to be excludable from income, it must be paid under an accountable plan, which requires:- The expenses must have a business connection.- The employee must substantiate the expenses (time, place, business purpose) within a reasonable period.- The employee must return any excess reimbursement within a reasonable period.
If these requirements are not met, the per diem is treated as paid under a nonaccountable plan and is taxable.
4. Documentation and Substantiation
Even when using per diem rates, employees (or employers) must maintain records of:- The dates of travel,- The business purpose,- The destination,- The duration of the assignment.
5. Summary Table
6. Key Takeaways
- Per diem can be used for temporary assignments (≤1 year) away from the tax home.
- Per diem cannot be used for assignments expected to last more than one year; such payments are taxable.
- Proper documentation and compliance with accountable plan rules are essential.
- If the assignment’s expected duration changes, the tax treatment of per diem must be updated as of the date the change is recognized.
If you have a specific scenario or need to know about a particular type of assignment, please provide more details.
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