When are two per diems better than one? — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily
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When are two per diems better than one?

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in Small Business Tax

In lieu of tracking every bagel or doughnut eaten by employees on the road, your company can use trouble-free per-diem rates. The per diems are actually the allowances approved for travel by U.S. government employees.

You can use two basic per-diem rates. The first is based separately on the employee’s travel destination. The second depends on the annual “high low” rates established each year for certain areas.

Strategy: Mix and match per diems to your advantage. No law says you have to use the same method for all employees. Example: You might use one method for one employee and the other for a second employee, whichever provides better results.

However, you’re strictly prohibited from using either per-diem allowance for an employee who owns 10% or more of the company.

Here’s the whole story: With a per-diem allowance, employees don’t have to keep receipts for all of their travel expenses.Your company simply pays the IRS-approved allowance—no muss, no fuss. Employees don’t even have to report the payments on their tax returns. However, they still must substantiate the time, place and business purpose of their business travel.

The government also establishes a flat rate for certain high-cost areas. The IRS recently announced that the per diem for travel in high-cost areas for 2008 (effective Oct. 1, 2007) is $237. The rate for low-cost areas is $152.

To reduce the paperwork burden, you might use the high-low method for employees who travel extensively. On the other hand, you can require other employees to use the specific location method if they frequently travel to low-cost areas.

Tip: The Government Services Administration is responsible for updating the per diems. To find rates for specific areas, click on www.gsa.gov/perdiem and refer to the map.

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