Per Diem is a Latin term simply meaning “for each day.” It is a monetary amount given by a company to an employee to cover living expenses such as accommodations, meals, and gasoline while traveling. Costs could be covered up front in the form of a lump sum, or reimbursed at the end of a trip when receipts are given to an employer. If reimbursed at the end of a trip, travel costs may depend on the amount of distance traveled, as outlined in the United States Business Mileage Reimbursement Rate. When an employee’s earnings are reported for the year, the employer lists Per Diem under miscellaneous, non-taxable income.
The US Business Mileage Reimbursement Rate is a method for determining business deductions for Federal income tax from traveling in a vehicle for business purposes. This rate is established based on changing costs of operating and maintaining a vehicle, such as gasoline, oil, tires, repairs, and maintenance. Reimbursements can be made even if the vehicle used by an employee is not owned by the business. For Federal employees, the General Services Administration has set a reimbursement rate that matches the rate set by the IRS. The US Business Mileage Reimbursement Rate changes yearly, though the current rate for 2015 is 57.5 cents per mile for business, 23 cents per mile for medical or moving purposes, and 14 cents per mile in assistance to charitable organizations.
Per Diem rates depend on the type and location of accommodations an employee resides in while on business. For example, a hotel in a city would most likely be more expensive than a motel in a rural area, so the Per Diem rate would be reflected as such. As a general rule, Per Diem reimbursement requires an overnight stay more than fifty miles away from the employee’s tax home.
There are circumstances in which an employee would be on business away from their tax home for an extended period of time. If the travel time is expected to be less than a year, it is considered temporary and can be reimbursed. However, if travel time is expected to be more than a year, it is considered indefinite employment and cannot be reimbursed for Per Diem on taxes.
Members of the US armed forces are reimbursed Per Diem when away from home, as specified in the Joint Federal Travel Regulations. For the first and last days of travel, costs are reimbursed 75% of the General Services Administration rate. All other days are reimbursed with the full rate. Federal employees are able to purchase temporary places of residence while away from home. Property taxes, utilities, and mortgage interest from this can be claimed on tax returns.