IRS Per Diem Rules You Need to Know

Employers who pay travel expenses in excess of federal per diem rates need to monitor transportation spending and require employees either to return excess amounts or include excess amounts in compensation. Otherwise, employers can be held liable for income and unemployment taxes on the ENTIRE allowance. This is the result of Revenue Ruling 2006-56, which labels nonreporting of excess travel allowances as an abuse of travel reimbursement rules--though a grace period exists through the end of 2006 to reset monitoring of expense accounts. Additionally, the IRS will not contest rates at or below the Federal per diem rates.

I personally have never worked for a employer which paid travel in excess of federal per diem. However, CPAs should alert clients whom they know use a generous travel reimbursement policy to consider the impact of this Revenue Ruling.