If you've ever traveled for business, you know prices can add up and things can get complicated. Luckily, employers can provide a per diem so that all not all expenses are out of pocket. It is important to understand what a per diem is and how it can affect your business’ future financials.

What Is Per Diem?

Per diem is the allowance employers provide their employees to cover travel expenses during business trips. The 48 continental states have similar rules and regulations regarding per diem; any international travel has different standards that are put into place by the State Department. It is essential to understand per diem so that individuals can budget correctly and plan future financials accordingly.

What Is Covered?

Per diem can be used for all meals (breakfast, lunch, and dinner), lodging, room service, laundry services, and fees and tips for service people.

Who Is Eligible?

There are a few eligibility requirements for per diem to be used for business travel. The amount of per diem must not exceed the federal rate. Those who are using per diem must also make sure that they put together an expense report at the end of the trip to pass on to their employer.

How Much Is Allowed?

Just as the cost of living varies from state to state and city to city, so does the amount of per diem allocated for spending purposes. There are a couple of different ways to check what the per diem offered is in a specific area. You can ask your employer, who should know, or you can check the GSA's per diem rate finder.

Locations are put into specific tiers that each allow a certain amount of per diem. Higher tiers are usually major cities that cost more to stay in. The amount allocated is a daily rate.

• Tier One: $59 total
• Tier Two: $64 total
• Tier Three: $69 total
• Tier Four: $74 total
• Tier Five: $79 total

The Tax Rules

If you are giving out or using per diem, it's important to understand the tax regulations associated with the allowance. Per diem is not subject to any income tax because the allowance is not included in employees wages.

Per diem can be taxable for employers if the following occurs:

• The employee did not file an expense report with their employer
• The employee expense report does not include the date, time, place, total amount, and purpose of per diem
• The employer provides a flat amount with no expense report
• Payments exceed the standard federal rate (which is $157)

Deductions

Employers can deduct up to 50% of per diem payments that are used for meals or incidentals. Businesses can also deduct entire lodging expenses as long as they are kept on file. Self-employed people can only deduct 50% of their meal costs from per diem.

The Advantages

There are a few key benefits to using per diem as an allowance when traveling for business reasons. Overall, per diem can allow businesses to better budget and plan their financial futures. Employers are also allowed to keep any expenses that are allocated but not spent, increasing their overall revenue.

It is also an easy and convenient way to provide supplement money while employers travel. By using per diem, employers and employees don't need to keep any physical receipts. It also decreases the amount of paperwork involved for these kinds of expenses.

The tax deduction process is also streamlined for businesses. It ensures that employees will not get taxed on reimbursements that they use while traveling for work.

The Disadvantages

Although there are many benefits to per diem, there are also some drawbacks that you should be aware of. If the amount needed when traveling is not met by the allocated per diem amount, employees may have to pay out-of-pocket expenses. For this reason, employees are often overpaid or underpaid because the amount does not match their exact needs.

If the amounts are filed incorrectly or the wrong rates are paid, this could put the company at risk of financial downfalls.

Conclusion

Per diem is a useful tool for any business that needs its employees to travel. By properly understanding per diem policies and using them effectively, businesses can save money on travel expenses and ensure that employees are well-compensated for their time away from home.