When a company provides a $500.00 per diem for hotel expenses in a region where the GSA hotel rate is $500.00 is it necessary to separate a meal portion from the per diem for employee income reporting?
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When a company provides a $500.00 per diem for hotel expenses in a region where the GSA hotel (lodging) rate is $500.00, it is not necessary to separate a meal portion from the per diem for employee income reporting, provided that the per diem is used exclusively for lodging and does not include meals and incidental expenses (M&IE).
Here’s the legal reasoning:
1. Nature of the Per Diem and Federal Rates
- The federal per diem rate is composed of two parts: a lodging rate and a meals and incidental expenses (M&IE) rate. The GSA publishes these rates for each locality. For example, if the GSA rate for lodging is $500 and the M&IE rate is $74, the total federal per diem rate for that location would be $574 per day ($500 lodging + $74 M&IE).
2. Accountable Plan Requirements
- Under an accountable plan, if an employer reimburses an employee for lodging only (at or below the federal lodging rate), and the employee substantiates the time, place, and business purpose, the reimbursement is not included in the employee’s income and is not subject to withholding or reporting as wages.
- If the per diem is for lodging only, and does not include meals, there is no need to allocate or separate a meal portion for income reporting purposes.
3. When Separation is Required
- If the per diem covers both lodging and M&IE, and the total per diem exceeds the federal rate, then the excess must be treated as wages and reported as income. In such cases, the employer must separate the amount attributable to meals and incidental expenses, as the M&IE portion is subject to the 50% deduction limitation and may have different tax treatment.
- However, if the per diem is strictly for lodging and matches the GSA lodging rate, and meals are not included or reimbursed separately, no separation is required.
4. Documentation and Substantiation
- The employee must substantiate the business purpose, time, and place of the lodging. Receipts for lodging are not required if the per diem method is used, but the employer must have a reasonable belief that the employee incurred lodging expenses.
5. Summary Table from IRS Guidance
- If the per diem allowance is for lodging only and does not exceed the federal lodging rate, and the employee substantiates the expense, the amount is not included in income and no separation of a meal portion is required.
6. Caveat
- If the per diem is intended to cover both lodging and meals, or if the employer does not specify what portion is for lodging and what portion is for meals, then the employer must allocate the per diem between lodging and M&IE based on the federal rates for that locality. Any excess over the federal rates must be treated as wages.
7. Conclusion
If the $500.00 per diem is provided solely for hotel (lodging) expenses and matches the GSA lodging rate for the region, and does not include meals, it is not necessary to separate a meal portion from the per diem for employee income reporting. No amount is included in the employee’s income, and no allocation is required. If, however, the per diem is intended to cover both lodging and meals, then the employer must separate the meal portion according to the federal M&IE rate for that locality.
If you have a per diem that is not clearly designated as lodging only, or if it exceeds the federal lodging rate, further separation and reporting may be required. If you need guidance for a per diem that includes both lodging and meals, please provide those details.
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