A travel stipend (AKA Per Diem) is a fixed sum of money given by an employer to an employee to cover travel-related expenses, such as lodging, meals, and transportation. These are offered for work-related business travel under an accountable plan, making them tax-free to a point.
The IRS distinguishes between accountable and non-accountable plans to determine the tax treatment of employee travel stipends. For a stipend to be non-taxable, it must be part of an accountable plan that follows specific rules for business connection, substantiation, and returning excess funds.
Accountable plan (non-taxable)
To be considered an accountable plan, the stipend or reimbursement must satisfy three requirements:
- Business connection: The expense must be incurred for a legitimate business purpose while the employee is performing their job.
- Substantiation: The employee must provide proof of the expenses, such as receipts, detailing the amount, time, place, and business purpose, within a reasonable period of time (e.g., 60–120 days).
- Return of excess funds: The employee must return any stipend amount that exceeds their substantiated expenses within a reasonable period.
If a plan satisfies these criteria, the travel stipends or reimbursements are not considered taxable wages to the employee and do not need to be reported on their W-2.
Non-accountable plan (taxable)
If a stipend or reimbursement arrangement fails to meet any of the three rules for an accountable plan, it is treated as a non-accountable plan.
- Taxable wages: Payments under a non-accountable plan are considered taxable wages, subject to income tax withholding, Social Security, and Medicare taxes.
- W-2 reporting: The company must include the travel stipend amount in the employee's gross income on their W-2 form.
- No expense reporting: The company does not require employees to report how they spend the money or return any unused portion.
The IRS Guidelines for Travel Stipends for Private Employees
Accountable Plan Required
- Reimbursements or stipends must be under an accountable plan to be non-taxable
- Employees must document expenses and return any excess
Covered Expenses
- Business-related travel
- Eligible expenses include: Lodging, Meals and incidentals like tips/parking/tolls etc.
Per Diem Limits
- IRS allows reimbursement up to federal per diem rates for location
- Standard Continental US rate is $178/day ($110 for lodging and $68 for meals & incidentals)
- High Cost Localities like some areas in California, New York and a few others can be as high as $319/day
Substantiation
- Employees must provide receipts or expense reports
- Any reimbursement over specified rates may be taxable
Non-Taxable if Rules Followed
- Within per diem (specified) limits
- Proper documentation is submitted
- Excess is returned
Taxes apply if
- Paid as a flat stipend and not tied to actual expenses
- Exceeds per diem (specified) rates
- No receipts or documentation provided
Sources: Many companies use the GSA Rates to simplify travel reimbursements/stipends. The GSA Rates help to ensure that the stipends are non-taxable under the IRS rules if structured as an accountable plan. You can review the standard rates for the city you're traveling to on the GSA site here:
If you're a whiz at taxation laws and you don't break out into a cold sweat when tax time comes around, you're probably in the clear, but if any of the above information seems new to you or even a bit confusing its best to consult a professional.
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