![]() ![]() Because the work at each location is driven by a business need of Caroline’s employer, she is treated as having primary and secondary work locations and is not treated as commuting between the two locations. But Caroline is also needed at the headquarters so her employer asks her to spend two days a week at the headquarters in Location A and three days a week at the store in Location B. Her employer opens a new store in Location B and asks her to handle the day-to-day operations for two years while the store is getting up to speed. In addition, lodging and meals at the location which is away from the employee’s residence can generally be paid or reimbursed tax-free.Įxample: Caroline lives in Location A and works at her company headquarters there. In general, the IRS holds that transportation costs between the two locations can be paid or reimbursed by the employer tax-free. ![]() The employee’s residence may be in either the primary or the secondary location. Factors such as where the employee spends the most time, has the most business activity, and earns the highest income determine which is the primary location with the other being the secondary location. Sometimes an employer requires an employee to consistently work in two business locations because of the needs of the employer’s business. Since Atlanta is Bob’s tax home, these travel expenses are personal commuting expenses and the employer’s reimbursement of the expenses is taxable compensation to Bob. Bob’s employer reimburses him for an apartment in Atlanta plus his transportation expenses between the two cities. According to the IRS, if it is the employee’s choice to live away from his or her regular workplace (tax home), then the travel expenses between the two locations which are paid or reimbursed by the employer are taxable income to the employee.Įxample: Bob’s personal residence is in Chicago, but his regular workplace is in Atlanta. This is the case even when an employee is traveling a long distance between the employee’s residence and workplace, such as when an employee takes a new job in a different city. If these expenses are paid or reimbursed by the employer, they are taxable compensation to the employee. Usually expenses incurred for travel between the employee’s residence and the employee’s regular workplace (tax home) are personal commuting expenses, not business travel. Generally, only expenses paid or reimbursed by an employer for an employee’s travel away from an employee’s tax home are eligible for favorable tax treatment as business travel expenses. Usually the tax home includes the entire city or area in which the regular workplace is located. One of the key building blocks for the treatment of employee travel expenses is the location of the employee’s “tax home.” Under IRS and court holdings, an employee’s tax home is the employee’s regular place of work, not the employee’s personal residence or family home. The per diem rules are outside the scope of this article. Employers need to collect this information within a reasonable period of time after an expense is incurred, typically within 60 days.Ĭertain meal and lodging expenses can fall within a simplified substantiation process called the “per diem” rules (although even these expenses must still meet some of the substantiation requirements). In addition, it is assumed that the expenses are properly substantiated so that the employer knows (1) who incurred the expense (2) where, when, why and for whom the expense was incurred, and (3) the dollar amount. In the discussion below, it is assumed that all travel expenses are ordinary and necessary and incurred by an employee (or a partner in a partnership) while traveling away from home overnight for the employer’s business. This article is intended to be only a general overview as the tax consequences to an employee for a given travel arrangement depend on the facts and circumstances of that arrangement. Although business travel can also raise state tax issues, those issues are beyond the scope of this article. The purpose of this article is to address some of the more common travel arrangements which can result in taxable income to employees for federal tax purposes. ![]() Sometimes the travel expenses paid or reimbursed by the employer must be treated as taxable compensation to the employee subject to Form W-2 reporting and payroll taxes. However, the tax rules become more complex when the travel is of a longer duration. Generally, expenses for transportation, meals, lodging and incidental expenses can be paid or reimbursed by the employer tax-free if the employee is on a short-term trip. Most employers pay or reimburse their employees’ expenses when traveling for business. ![]()
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