Employees are given per diem to cover costs while traveling on business. Per diem is nothing more
than a daily allowance given to travellers to help with travel expenses. Per diems pay for lodging,
meals, and other incidental incurred on business. Businesses may provide per diems in the form of a
business credit card, complete or in part covered expenses, or predetermined daily rates. Most
businesses base their per diems on the federal government’s standard rate.
Things to consider if looking to deduct meals and entertainment.
§162 (a)2 Ordinary and necessary expenses are deducted as long as it during the taxable year for
traveling costs while away from home during a trade or business, including sums spent on meals and
housing that are not extravagant or expensive under the circumstances
§1.274-12(a) No deduction is allowed for food or beverage unless:
Expenses not lavish or extravagant
Taxpayer, an employee of the taxpayer is present at providing of food. b
Food or beverage is [provided to taxpayers or business associates.
§1.274-12(2)
Only 50% of food and beverage costs are allowable as a deduction unless otherwise specified.
§274(d) Traveling (meals and lodging) expenses under §162 must be substantiated, if not no
deduction or credit is allowed. Substantiate just means the taxpayer has to adequate evidence
confirming the taxpayer’s statement regarding the amount of expense, also time, date, and place
description of the travel, the business purpose of the expense, and the business relationship to the
taxpayer.
Misunderstanding that food and beverage for employees is subject to 50% deductible. I would
advise the client that food and beverage under recreational expenses for employees can be deducted
100%, §1.274.12(iii). This is true if the employer is providing food at holiday parties, company
picnics. Also, I would explain meals/ food provided to the public can receive a 100% deductible as
well §1.274.12(iv)
Per diem refers to daily allowances paid to employees to cover costs incurred while on a business
trip. Business expenses that are covered include accommodation, food, and other incidental expenses
such as fees and tips for services.
Under § 162(a)(2), a taxpayer shall be allowed as a deduction all the ordinary and necessary expenses
paid or incurred during the taxable year in carrying on any trade or business, including - traveling
expenses (including amounts expended for meals and lodging other than amounts which are lavish
under the circumstances) while away from home in the pursuit of a trade or business. Per diem,
payments are useful for employees whose jobs require extensive traveling. Such travel can rack up
annual business expenses for accommodations, meals, travel, etc. Companies have different per diem
policies to cover these expenses:
Company credit cards: Some companies issue credit cards to their employees, which are used to pay
out-of-pocket expenses
Full or partial expense coverage: Some companies cover employee expenses in full, while others only
offer per diem payments for certain expenses
Fixed amounts: Many corporations provide employees with a fixed daily rate. Employees are
expected to cover all or part of their costs with this per diem.
Per diem rates for the United States are set once a year by the Government Services Administration
(GSA). On October 1 of every year, the GSA sets new per diem rates. The standard lodging rate
increased from $96 to $98.10, while meals and incidentals remained unchanged.
The TCJA disallowed any deduction for entertainment expenses, and distinguishing meals and
entertainment expenses became necessary. Notice 2018-76 Pub. L. No. 115-97 Business meals are 50
percent deductible, while entertainment expenses are completely non-deductible.
However, the deduction limitation for meals and entertainment expenses is subject to certain
exceptions, rendering some expenses deductible. The IRS recently finalized regulations addressing
this deduction, including examples of meals and entertainment expenses not limited by the limitation
rules. I recommend having the employee maintain all receipts and turn them in with an expense
report. If the employee exceeds the per deem threshold, the company should include the excess in
their gross wages, subjecting the amount to payroll taxes.
Reference:
Internal Revenue Codes of 1989
162(a) §
162(a)(2)
Notice 2018-76 Pub. L. No. 115-97
