Have a Tax Question? Ask a Tax Expert
1) How does expense reimbursement become taxable income? That doesn't seem right. I incur an expense and get my expenses back seems like a net of $0, which means I can't count it as a non-reimbursed expense. 2) I received per diem for a 10-month project, should that be taxable as well?
When an employer pays you for expenses, they can pay you either under an accountable plan or a non-accountable plan. An accountable plan is when you turn in actual receipts for your expenses and you are reimbursed that exact amount. A non-accountable plan is where you are just paid a flat amount to cover your expenses and you are not required to justify your actual expenditures.
Expense reimbursements made to you under an accountable plan should not be included in your taxable wages, but reimbursements made under a non-accountable plan are included in your taxable wages. However, that does not mean that you will end up paying taxes on that full amount.
In a case where the reimbursements for expenses were added to your taxable income, then essentially those expenses were not reimbursed -- because this was just treated as taxable wages paid to you. So in that case you would file Form 2106 for unreimbursed employee expenses, and claim those expenses as a deduction on Schedule A. You will show that you received no reimbursement for your expenses, because essentially you did not receive reimbursement due to the fact this was added to your taxable income.
Amounts paid to you as a per diem allowance for a temporary work assignment should not be taxable income to you.
I understand the answer to the first part. I've just received my W-2 and looks like I've been taxed on the per diem as well as the expenses. Since the per diem is included as taxable wages, Can I use the per diem table for a deduction in that particular area?
If the per diem amounts were included as part of your taxable income, then this was not a true per diem plan. You would again report your expenses on Form 2106 in the same manner as I described earlier for expenses paid to you under a non-accountable plan. You cannot simply use the per diem rates for deducting all of your expenses.
For meals, you can choose to deduct either the actual cost or you can use the per diem rates for meals. For incidental expenses you can also choose to deduct the actual costs, or you can claim a per diem rate of $3 per day to cover all incidentals. Other expenses such as lodging and car rental expenses must be claimed on the basis of the amount you actually spent on your lodging and car rental. You cannot claim a per diem amount for anything other than meals and incidental expenses.