Do I List Per Diem in My Monthly Salary?

A per diem is a dollar amount allotted as a daily allowance for employees in specific types of jobs. Per diems are common in the travel and entertainment industry where employees may not be home to make meals or use a car. A salesman who must use his own car may have a per diem car allowance for daily travel and on-the-road expenses. If reimbursements are properly recorded, per diem rates are not taxable.

1. In Lieu of Salary

   • A per diem reimburses employees for travel expenses such as lodging, meals, gas and mileage. Rather than increase the salary of an employee, creating a taxable income source, the per diem is considered an expense of the company to aid employees in performing job duties effectively. When the per diem falls within IRS daily allowances for the region the employee is working in, the funds are not added to the employee's monthly salary.

   Exceeding Federal Rates

   • It is possible for an employer to give an employee per diems that exceed IRS daily allowance rates. The IRS maintains a schedule for rates in major cities. If the allowances are not properly tracked with receipts for all reimbursements and the per diem is paid to the employee, funds can be considered part of the employee salary. Only the excess per diem above federal rates is considered income and wages, becoming subject to income tax as well as employment tax for fringe taxes such as Social Security and unemployment.

   Keeping Track of Rates

   • Rates change for per diem amounts. Not only can rate adjustments be made annually by federal legislators, but the per diem also may differ from one city to the next. In addition, it can change from season to season in areas where costs may increase during peak seasons such as high tourist months. If an employer starts the per diem rate at the beginning of the year but the rate reduces during the year, the employer can choose to use the high-low method to substantiate employee per diems. The high-low method allows employers to continue the initial rate through the calendar year.

   Considerations

   • More employers are moving away from granting per diems and are instead choosing to use company-issued credit cards to track employee expenditures. The credit card method eliminates the need to collect receipts. When corporate credit cards are issued, the employer retains more control over the expenses and has more supervision over employees out of the office.