If you travel a lot for business, listen up. The IRS has announced the new per-diem rates, which became effective on October 1. These numbers apply to any employee for all travel away from home that takes place on, or after that date. There are several changes to be aware of this year, especially because of the Tax Cut and Jobs Act. As part ofthe changes, new rates for the transportation industry were announced. The rate for incidental expenses was also altered. And last, but not least, the rates for high-cost locations were also released.
Daily Travel Expenses
Per diem (which means “for each day”) rates are used to make it much easier for employers to reimburse their employees who travel. They are set amounts that employers pay to their workers to reimburse their travel expenses, like food and lodging. Thatmeans the employee gets a fixedamount to spend on these things each day they are traveling, instead of being reimbursed the actual amount.
Keep Expense Reports
For tax purposes, per diem payments are not counted as part of the employee’s wages. Unless the payments are higher than the federal per diem rate or the employee doesn’t provide an expense report. Fail to get an expense report and you’re responsible to pay taxes on the payments. Furthermore, if you receive any payments that are higher than the per diem rate you will also be taxedon that amount.
Miscellaneous Deductions Have Changed
This is significant because the new tax law has changed how people can report their expenses compared to previous years. For example, last year, employees that incurred unreimbursed job expenses could deduct them as miscellaneous deductions, as long as they exceeded 2% of their adjusted gross income. But that has changed thanks to the Tax Cut and Jobs Act. The new law wiped out unreimbursed job expenses and miscellaneous itemized deductions, which fall into the 2% rule. That includes unreimbursed travel and mileage.
Self-Employed Can Still Claim Business Expenses
As for the self-employed, they can still deduct their business-related expenses. On the flip side, they cannot really take advantage of the per diem rates, as much as employed taxpayers. The self-employed can only use the per diem rates for eating expenses and not for travel. So, that means self-employed workers should continue to keepvery detailed records of all their expenses.
What AboutIncidental Expenses?
So how does the changes affect incidental expenses, like room service, tips, laundry, and dry cleaning? They are still covered, but the per diem rate for these expenses only is $5. And some expenses that used to fall into the incidental expenses category no longer do. If you want to be reimbursed for those expenses then you’ll have to check with your employer. In fact, that’s a smart move in general. Many of the unreimbursed job expenses that you usedto have will no longer be deductibleunder the Tax Cut and Jobs Act. So, it’s a good idea to see if your employer can reimburse you for those expenses going forward.