Should You Follow GSA Per Diems or Create Your Own Maximum Expenses?
A per diem is an amount of money employees are allowed to spend per day while on business trips. When federal employees travel for work, the Government Services Administration sets limits on daily expenses for lodging, meals, and incidental expenses. Any expenditures above the per diem are generally covered by the employees, though they are allowed to exceed the prescribed per diem if there is no other option. The GSA's website has a breakdown of daily federal expense rates for the 48 contiguous continental states. For those travelling abroad, the State Department provides its own per diem rates, and the Department of Defense publishes per diems for non-foreign destinations: Alaska, Hawaii, Puerto Rico, and Guam.
The GSA standards are set every year and reflect changes in the travel market. Since the government is perhaps the largest single employer in the United States, their figures both reflect and stabilize prices in the restaurant and hospitality industries.
How do GSA Per Diems Apply to Private Companies?
The GSA's per diem rates apply to private-sector employees in that they are a standard recognized by the IRS. The IRS sees reimbursements that fall under the federal per diem rate as non-taxable. However, when employees exceed the per diem rates set by the GSA, any overage amounts are subject to income or employment tax. This can be avoided, however, by keeping accurate and detailed records of all travel expenses.
Keep in mind that workers traveling on a per diem should keep track of all of their expenses. No matter how high or low you set the per diem, every expense should be accounted to track the efficacy of that per diem. Further, all lodging, travel, and incidental expenses need to be logged for tax purposes. If, however, there is a long trip pending, companies may wish to provide tax advice for their team members so that they can avoid unfavorable tax consequences. Though rare, if they are audited, expense reimbursements above the federal guidelines could be taxed.
Further, business travel that exceeds a year in a single destination is not exempted from taxes. To avoid unpleasant tax surprises, consult a tax expert prior to embarking on a lengthy stay. You might be able to break your trip up with a return home, for instance. A tax specialist could help you find other ways to properly file expense reports that ensure that all reimbursements are classified as non-taxed revenue by the IRS.
If your company decides to set its own per diem rates, be aware that the GSA rates will apply for the purposes of taxation. If, for instance, your company's 2017 per diem rate for New York City is $500/day, that figure will be $199 above the federal rate for NYC in October. For tax purposes, then, employees will only need to account for the difference.
Creating Your Own Per Diem
If your company decides that the GSA's per diem guidelines are restrictive, you can implement your own travel policies. After all, the federal rates are created with government employees in mind, and private companies have different goals and needs. After all, you can't close a multi-million dollar account in a budget restaurant. Such an important meal might cost more than several days worth of GSA per diem allowances.
You can, however, use the GSA's website as a standard when devising your policy. After all, those rates do help set standard pricing levels in the travel and hospitality industry. For trips that don't involve lavish client dinners, the GSA per diem might be acceptable. Or you can set your own suggested maximums for things like lodging, then have management approve or disapprove hotel expenses depending on the nature of the travel.
If your company sets rates above the federal per diem rate, it is important to know what the taxable limits are for your chosen destination. To simplify things, and for easy reference, provide your team members with the GSA's website. The GSA provides a handy search page where they can look up the per diem rates for any city in the contiguous 48 states.
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