Traveling for work can include a few perks such as a per diem amount to reimburse you for food, entertainment and lodging. This money is in addition to your salary, and it often gives you room to enjoy a meal or stay at a hotel on the company's dollar. However, there's a potential downside: Some of these per diem funds can be reflected on your W-2 as taxable income.
What Is a Per Diem?
A per diem is a daily amount set by your employer to reimburse you for travel expenses. For example, your employer might pay for your hotel on the company credit card but provide $50 per day in reimbursements to cover your food. How you spend that $50 is up to you in most cases, although you must provide the employer with receipts or proof of the amount of per diem you need to be reimbursed. The employer could provide a higher per diem designed to cover all your travel costs, leaving you to budget the money to cover your hotel and food expenses.
When It's Taxable
The IRS sets a limit on per diem amounts that don't have to be reported as income. If your employer provides you with a per diem equal to or less than the amount set by the IRS, the per diems won't show up on your W-2. However, if the employer provides more than the maximum allowed amount, the IRS considers the overage as income for you and requires that the overages be reported on your W-2. The full amount of the per diem isn't reported – only the difference between the allowed amount and the actual amount.
Maximum Per Diem Allowed
The IRS provides Publication 1542, which gives you guidelines on how much of a per diem is allowed. The amount differs based on where you travel because the IRS takes costs of living into consideration when setting the per diem limits. As of 2019, the lowest allowed per diem amount is $149, estimating $94 for your hotel and $55 for meals, entertainment and incidentals.
According to federal guidelines, there are only 325 'non-standard areas', or NSAs, in the United States that feature per diem rates higher than this particular base value. As can probably be imagined, larger cities will typically fall into the NSA category given the higher cost of living there.
Retaining Receipts for Purchases
Retaining some kind of receipt is key to keeping per diems off your W-2. Non-accountable per diems, or those paid to you by your employer without you providing receipts, are all considered taxable income by the IRS.
Use a credit or debit card instead of cash for your purchases in case you lose your receipts; credit and debit card records show the date, the name of the hotel or restaurant and the amount spent. The IRS requires a written statement from you in addition to your credit or debit card statement that provides details of the missing receipt, such as what you ate and with whom. Some employers won't accept credit card statements for per diem reimbursements, so check your company policies.
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