Businesses and their employees often rely upon federal per-diem tables and mileage allowances to report meal and travel expenses rather than documenting specific costs. This is true even if the amount claimed is less than the amount the employee spent. Employers must retain dates, times, and the business purpose of the expense. If your company is using per-diem reimbursement amounts, be sure to adjust for cost differences in different areas for per-diem amounts and prorate for partial days of travel. The federal rate for travel can be figured in different ways: the federal per-diem rate, the standard meal allowance, or the high-low rate (see Rev. Proc. 2011-47 for rules and Notice 2019-55 for the relevant rates for the period Oct. 1, 2019, through Sept. 30, 2020).
Business owners and related parties cannot themselves use per-diem amounts to prove their expenses as owners must provide actual receipts in all circumstances. Expenses related to an employee’s spouse and family attendance at business events are not deductible and not reimbursable under an accountable plan, unless it can be clearly shown that the family presence has a business purpose.
For payments made to independent contractors under a reimbursement plan, the 50% limitation on meal expenses does not always apply. If the independent contractor has not fully accounted for the meal expenses, the business would treat the payments as made to the contractor for services rendered. If the meal expenses are fully accounted for, the meal expenses would be 50% deductible by the business (Regs. Sec. 1.274-2(f)(2)(iv)). Businesses and independent contractors can stipulate how meal expenses are to be treated in their contract.
Auto expenses can be reimbursed at the standard mileage rate or a fixed and variable rate (FAVR). If an individual receives reimbursements using the IRS mileage rate, actual expenses need not be substantiated, but other elements of business driving (date, mileage, destination, etc.) must be reported to the employer using an expense account report, app, or other written record.
Regs. Sec. 1.274-5(c)(2)(iii)(A)(2) provides general flexibility in the types of documentation necessary to prove an expense. Individual Sec. 274 expenses of less than $75 do not require a specific receipt, with the express exception that lodging expenses, regardless of amount, must be documented (Regs. Sec. 1.274-5(c)(2)(iii)(A)(1)).
