Expert: Carole Dunton - 8/24/2006

Question
I work for a company that our techs travel alot, the company pays us $40.00 for meals if we have an overnight stay $15.00 if traveling for over 12hrs. They add this in to our regular taxeble income so we don't taxes taken out of these amounts.  My background in the military per diem was always non taxeble so this confuses me. any help or explantion of these laws would be greatly appericated

Answer

Hi,

I'm a little confused.  You said "They add this in to our regular taxeble income so we don't taxes taken out of these amounts."  If they add it to you regular taxable income, then don't they take taxes out?  

An employer can reimburse employees under an accountable plan based on travel days, miles or some other fixed allowance.  (This sounds like what your employer is doing.) If the allowance for an employee is less than or equal to the appropriate federal rate, the allowance is treated as reimbursed under an accountable plan and is not included in the employee's taxable income.  If the allowance is greater than the federal rate, the amount up to the federal rate is excluded from employee wages under an accountable plan but reported to the employee in box 12 (code L) on Form W2.  The excess amount is reported in box 1, Form W2 as taxable wages under a nonaccountable plan.

If you can substantiate that your actual expenses exceeded the amount you were paid, you can deduct the difference as an itemized deduction to the extent the excess amount of expenses exceeds 2% of your adjusted gross income.  You would file Form 2106 to report the actual expenses and the amount you were reimbursed.

Regards,
Carole