Page 104 - Small Business Taxes

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4. You give a periodic statement (at least Table 11-1. Reporting Reimbursements 16:31 - 2-Feb-2023
quarterly) to your employees that asks
them to either return or adequately ac- IF the type of reimbursement (or other expense
count for outstanding advances and they allowance) arrangement is under THEN the employer reports on Form W-2
comply within 120 days of the date of the
statement. An accountable plan with:
Actual expense reimbursement: No amount.
How to deduct. You can claim a deduction for Adequate accounting made and excess returned
travel and non-entertainment-related meals ex- Actual expense reimbursement: The excess amount as wages in box 1.
penses if you reimburse your employees for Adequate accounting and return of excess both required
these expenses under an accountable plan. but excess not returned
Generally, the amount you can deduct for Per diem or mileage allowance up to the federal rate: No amount.
non-entertainment-related meals is subject to a Adequate accounting made and excess returned
50% limit, discussed later. If you are a sole pro- Per diem or mileage allowance up to the federal rate: The excess amount as wages in box 1. The amount up to
prietor, or are filing as a single member limited Adequate accounting and return of excess both required the federal rate is reported only in box 12—it isn’t
liability company, deduct the travel reimburse- but excess not returned reported in box 1.
ment on line 24a and the deductible part of the Per diem or mileage allowance exceeds the federal rate: The excess amount as wages in box 1. The amount up to
non-entertainment-related meals reimburse- Adequate accounting made up to the federal rate only and the federal rate is reported only in box 12—it isn’t
ment on line 24b of Schedule C (Form 1040). excess not returned reported in box 1.
If you are filing an income tax return for a A nonaccountable plan with:
corporation, include the reimbursement on the
Other deductions line of Form 1120. If you are Either adequate accounting or return of excess, or both, not The entire amount as wages in box 1.
required by plan
filing any other business income tax return,
such as a partnership or S corporation return, No reimbursement plan The entire amount as wages in box 1.
deduct the reimbursement on the appropriate fixed costs (such as depreciation, insurance, High-low method. This is a simplified
line of the return as provided in the instructions
for that return. etc.). For information on using an FAVR allow- method of figuring the federal per diem rate for
ance, see Revenue Procedure 2019-46, availa- travel within the continental United States. It
ble at IRS.gov/irb/2019-49_IRB#RP-2019-46, eliminates the need to keep a current list of the
Per Diem and Car Allowances and Notice 2022-03, available at IRS.gov/irb/ per diem rate for each city.
2022-02_IRB. Under the high-low method, the per diem
You can reimburse your employees under an amount for travel during January through Sep-
accountable plan based on travel days, miles, Per diem allowance. If your employee ac- tember of 2022 is $296 ($74 for M&IE) for cer-
or some other fixed allowance. In these cases, tually substantiates to you the other elements tain high-cost locations. All other areas have a
your employee is considered to have accounted (discussed earlier) of the expenses reimbursed per diem amount of $202 ($64 for M&IE). The
to you for the amount of the expense that using the per diem allowance, how you report high-cost localities eligible for the higher per
doesn’t exceed the rates established by the and deduct the allowance depends on whether diem amount under the high-low method are lis-
federal government. Your employee must ac- the allowance is for lodging and meal expenses ted in Notice 2021-52, available at IRS.gov/irb/
tually substantiate to you the other elements of or for meal expenses only and whether the al- 2021-38_IRB#NOT-2021-52.
the expense, such as time, place, and business lowance is more than the federal rate. Effective October 1, 2023, the per diem rate
purpose. for high-cost locations will increase to $297
Regular federal per diem rate. The regu- ($74 for M&IE). The rate for all other locations
Federal rate. The federal rate can be figured lar federal per diem rate is the highest amount will increase to $204 ($64 for M&IE). For Octo-
using any one of the following methods. the federal government will pay to its employ- ber, November, and December 2023, you can
1. For car expenses: ees while away from home on travel. It has the either continue to use the rates described in the
following two components.
a. The standard mileage rate. 1. Lodging expense. preceding paragraph or change to the new
rates. However, you must use the same rate for
b. A fixed and variable rate (FAVR). 2. Meal and incidental expenses (M&IE). all employees reimbursed under the high-low
2. For per diem amounts: The rates are different for different locations. method.
For more information about the high-low
a. The regular federal per diem rate. See GSA.gov/perdiem for the per diem rates in method, see Notice 2022-44, available at
b. The standard meal allowance. the continental United States. IRS.gov/irb/2022-41_IRB#NOT-2022-44. See
GSA.gov/perdiem for the current per diem rates
c. The high-low rate. Standard meal allowance. The federal for all locations.
rate for M&IE is the standard meal allowance.
Car allowance. Your employee is considered You can pay only an M&IE allowance to em- Reporting per diem and car allowances.
to have accounted to you for car expenses that ployees who travel away from home if: The following discussion explains how to report
don’t exceed the standard mileage rate. For tax • You pay the employee for actual expenses per diem and car allowances. The manner in
year 2022, the standard business mileage rate for lodging based on receipts submitted to which you report them depends on how the al-
is: you, lowance compares to the federal rate. See Ta-
• 58.5 cents per mile for January 1, 2022, • You provide for the lodging, ble 11-1.
through June 30, 2022; and • You pay for the actual expense of the lodg-
Allowance less than or equal to the fed-
• 62.5 cents per mile for July 1, 2022, ing directly to the provider, eral rate. If your allowance for the employee is
through December 31, 2022. • You don’t have a reasonable belief that less than or equal to the appropriate federal
lodging expenses were incurred by the
To find the standard mileage rate for 2023, employee, or rate, that allowance isn’t included as part of the
go to IRS.gov/Tax-Professionals/Standard- • The allowance is figured on a basis similar employee's pay in box 1 of the employee's
Mileage-Rates. to that used in figuring the employee's wa- Form W-2. Deduct the allowance as travel ex-
You can choose to reimburse your employ- ges (that is, number of hours worked or penses (including meals that may be subject to
ees using an FAVR allowance. This is an allow- miles traveled). the 50% limit, discussed later). See How to de-
ance that includes a combination of payments duct under Accountable Plans, earlier.
covering fixed and variable costs, such as a Per diem rates online. You can access
cents-per-mile rate to cover your employees' per diem rates at GSA.gov/perdiem.
variable operating costs (such as gas, oil, etc.)
plus a flat amount to cover your employees'
Chapter 11 Other Expenses Page 45