TOPIC: Non Overnight Per Diem OFFICE: Office of the State Comptroller STATE: AL DATE: 01/26/11 QUESTION / ISSUE: In Alabama, employees are paid travel per diem for non overnight travel. Employees claim non overnight per diem when they are away from their official base for a meal allowance (6-12 hour trip) or a meal allowance plus ¼ of daily per diem amount (trip exceeds 12 hours). My questions are: 1. What states pay non overnight per diem? 2. If state pays non overnight per diem, is it taxable FICA and Medicare wages? 3. What states do not pay non overnight per diem? Follow-up questions: 1. If meal allowances and non overnight per diem are subject to FICA/Medicare are they paid through payroll and on the same pay frequency? yes or no 2. If no, are employment taxes with held during the accounts payable (voucher) process and how does the state report and handle for W-2 purposes? IRS has ruled that all State of Alabama non overnight meal allowances and pro rata per diem amounts are FICA/Medicare taxable. Alabama includes payment amounts on employee W-2 s as taxable wages, but historically we have not withheld employee FICA/Medicare tax or charged state agencies employer share. Some back ground information. This action was the direct result of an IRS payroll tax audit in 2010 for tax year 2007. Alabama has used a 1999 Social Security Administration (SSA) determination letter as justification for not considering payments as FICA/Medicare taxable wages. IRS pressured SSA claiming SSA exceeded their authority. SSA rescinded the letter in November 2010. As a result, I have a major payroll tax assessment from IRS to deal with. Arizona The State of Arizona does reimburse employees for meals when there is no overnight stay. These are taxable (federal, state, FICA and Medicare) payments. Responses to Follow Up Questions: Response #1 All such reimbursements are paid through the state's payroll system. The system uses different coding for overnight vs. non-overnight meal reimbursements. While emergency exceptions exist, generally these reimbursements are made in connection with normal bi-weekly payroll. Yes, Arizona pays these reimbursements through payroll on the same frequency as our regular pay, which is every two weeks. Arkansas The State of Arkansas does pay per diem per the GSA guidelines for overnight travel that includes lodging. We do pay any per diem for travel without an overnight stay. Hawaii Response #1 The State of Hawaii gives employees $20.00 meal allowance for same day travel (non overnight). The State of Hawaii pays $20 when an employee travels to one of the neighbor islands that does not include an overnight stay. This amount is described as "Meal Allowance in Lieu of Per Diem" and is taxed for both Social Security and Medicare. The amount is part of the collective bargaining agreements with many of the unions.
Responses to Follow Up Questions: Response #1 The allowance amounts are initially paid through accounts payable. The amounts are subsequently entered in our payroll system as "Wages in Kind" so that the income is reported and the appropriate taxes are withheld. 1. The meal allowance/non-overnight per diem are subject to FICA/Medicare and is paid as a separate check and paid when traveler submits a Statement of Completed Travel. 2. The taxes and payment is recorded as payment-in-kind and are recorded on the employees regular payroll check. Idaho Idaho does pay a percentage of total per diem allowance for partial days travel. Here is the odd part, the overnight per diem is not taxable; however, the meal allowance is taxable. This is a link to our website. http://www.sco.idaho.gov/ Go to Board of Examiners, Policies and Procedures, State Travel Policies and Procedures, Section 12 - Meal Expenses Allowable. Illinois Illinois pays non overnight per diem, see below. The Meal Allowances are not taxable FICA and Medicare wages. Section 3000.510 Meal Allowances a. The meal allowances specified in Appendix A, Reimbursement Schedule are the maximums allowed by the Travel Control Boards. The Council shall review the rates annually to determine necessary adjustments. b. The meal allowances are given when a traveler is not eligible to receive per diem. Receipts need not be submitted to support these. c. Breakfast is payable when an employee is on travel status and leaves headquarters or residence (if reporting directly to the destination) at or before 6:00 a.m. d. Lunch is not a reimbursable expense. The amount for lunch is established for the purpose of setting a per meal ceiling on conference lunches and meals purchased for non-state officers and employees. Dinner is payable when an employee is on travel status and arrives back at headquarters or residence (if reporting directly from destination) at or after 7:00p.m. For employees commencing travel after the close of business, but before 6:30p.m. Dinner reimbursement is allowed if the traveler would not be eligible for per diem. Employee Services: Other Services Reimbursement Schedule The following rates are effective for Agencies under the jurisdiction of the Board. Per Diem/Meals Within the State of Illinois Category Rate Breakfast $5.50 Lunch $5.50 Dinner $17.00
Per Diem/Meals Outside the State of Illinois Category Rate Breakfast $6.50 Lunch $6.50 Dinner $19.00 Iowa 1. Iowa reimburses expenses when there is no overnight stay. Iowa reimburses expenses up to an amount per meal with a limited amount of $5 Breakfast/$8 Lunch/$15 Dinner. As of July 2009 EO requires receipts for meals. 2. Yes, the taxable per diem is subject to FICA (both OASDI and Medicare) as well as federal and state taxable wages. In Iowa meal expenses are processed through our normal travel reimbursement process, accounts payable. When the meal goes through the payable process and is charged to a taxable meal object code it is then added to the individual s next payroll transaction as a taxable meal and processed as part of their normal bi-weekly pay. Louisiana The State of Louisiana allows for single day meals as we refer to meals with non overnight per diem. However, if allowed it must be reported as income at the end of the year therefore, most do not even allow. Below are the requirements to be considered. Single Day Travel: Meals are not eligible for reimbursements on single day travel. This means that when an authorized traveler of the state is in travel status where no overnight stay is required, no meals are eligible for reimbursement. Each department head or their designees are to determine the reasonableness of when an overnight stay is justified. However, the department head will be allowed to authorize single day meal reimbursements on a case-by-case basis or by type(s) of single day travel when it is determined to be in the best interest of the department. In those cases the department must keep the approvals in the travel file and must be responsible to take appropriate steps to report the reimbursement as wages to the employee. If a Department Head or his/her designee determines that single day meals will be provided for, they must follow the following allowances: Maine To receive any meal reimbursement on single day travel, an employee must be in travel status for a minimum of 12 hours. The maximum allowance for meal reimbursement for single day travel will be $30.00 a. Breakfast & Lunch: ($20.00) The 12 hours travel duration must begin at or before 6 a.m. b. Lunch: ($12.00) Requires 12 hours duration in travel status. c. Lunch & Dinner: ($30.00) The 12 hour travel duration must end at or after 8 p.m. We don t pay a non-overnight per diem but we do offer what is termed as an extended workday meal where we pay a minimal amount toward a meal if someone works 2 hours over. For those amounts we pay, it is paid through the accounting system but posted as an adjustment during our year-end payroll W-2 process. That payment is subject to Medicare. We don t pay full FICA here in Maine. When we post the adjustment to payroll we obviously haven t withheld the Medicare tax so we end up covering the employee and employer share. These payments are fairly small for Maine.
Minnesota Minnesota does not pay per diem. Instead, Minnesota reimburses for actual expenses incurred for expenses, such as lodging, air fare, and parking. Meal allowances are dictated by union contract or compensation plan. Amounts are required to be actual expenditures and are not to exceed allowed amounts specified in the contract/plan for breakfast, lunch or dinner. Employees are not required to submit receipts for the contract specified meal rates, but must be able to produce receipts if required by the appointing agency. The contracts/plans do also specify higher meal rates for certain metropolitan areas. For example, we may reimburse $7.00 for breakfast, $9.00 for lunch, and $15.00 for dinner. In the specified metropolitan areas, we reimburse at a rate of $8.00 for breakfast, $10.00 for lunch, and $17.00 for dinner. We allow what we refer to as meal bunching, meaning that employees may combine actual expenditures for meals as long as the total allowed for the day is not exceeded. Our contracts/plans require employees to be away from home overnight or departing from home in an assigned travel status before 6:00 am to be eligible for breakfast. Contract/plan language requires employees to be more than 35 miles from their work location to be eligible for lunch. And employees must be away from home overnight or required to remain in travel status after 7:00 pm to be eligible for dinner. Minnesota maintains an accountable plan for reimbursement of expenses. Meals without lodging are taxable FICA/Medicare wages. Also, we require employees to submit expenses within 60 days. If expenses are submitted after 60 days, then we treat all expenses as taxable FICA/Medicare wages. 1. Yes, they are paid through payroll and on the same schedule as payroll (bi-weekly). Mississippi In Mississippi, employees are paid a maximum daily meal allowance for non-overnight travel if the agency allows it. Many agencies do not because they do not want the additional paperwork. Many do because they have employees whose job duties require non-overnight travel. Employees claim non-overnight maximum daily meal allowance when travel status begins and ends. Mississippi does not break down time frames in which certain meals may be claimed or how much can be claimed per meal. From the State of Mississippi Travel Manual: "The Travel Vouchers require that actual meal expenses be reported separately from lodging and that taxable meals be separated from non-taxable meals. The IRS has ruled that any reimbursement of meal expenses for travel not including an overnight stay is considered nondeductible compensation and therefore taxable to the traveler. Agencies have the discretion to determine if taxable meal reimbursements will be paid. If taxable meals will be reimbursed by your agency, employee W-4 forms must be adjusted to take care of additional tax liability, and all employment taxes withheld from the reimbursement matched and properly reported." Montana 1. Montana pays employees for meals not overnight when they are in travel status and meet time requirements. 2. These payments are taxable FICA and Medicare wages. Nevada In Nevada, non-overnight per diem can be paid only if the employee travels at least 50 miles from their designated workstation. Here is the link to the memo that established this policy: http://budget.state.nv.us/allagencymemos/memos2007/aam2007_35.pdf We don't handle the payroll here in the controller's office (it's done by Department of Personnel), but as far as I know, non-overnight per diem is not subject to FICA and Medicare taxes.
New York Response #1 1. New York pays non overnight per diems, without a receipt we pay $5 for breakfast and $12 for dinner. With a receipt we pay up to the federal maximum per diem limit. 2. Yes, it is taxable wages a. New York pays a $5 breakfast and a $12 dinner for day trips. If the traveler leaves their home more than 1 hour before their scheduled start time, they earn breakfast. If the traveler arrives home more than 2 hours after their scheduled end time, they earn a dinner. b. Yes, non-overnight meals are taxable. 2. The meal allowance is paid through the travel voucher process. However, the taxable amount is transferred to payroll and the taxes are withheld during the first payroll of the next month. North Carolina 1. No, North Carolina does not however we do allow for meal reimbursements as described below in North Carolina s Budget Manual. 5.1.13 Meals during Daily Travel Employees may be reimbursed for meals for partial days of travel when in overnight travel status and the partial day is the day of departure or the day of return. The following applies: Breakfast: depart duty station prior to 6:00 am and extend the workday by 2 hours. Lunch: depart duty station prior to Noon (day of departure) or return to duty station after 2:00 p.m. (day of return). Dinner: depart duty station prior to 5:00 p.m. (day of departure) or return to duty station after 8:00 p.m. (day of return) and extend the workday by 3 hours. The travel must involve a travel destination located at least 35 miles from the employee's regularly assigned duty station (vicinity) or home, whichever is less. Allowances cannot be paid to employees for lunches if travel does not involve an overnight stay; however, employees can be eligible for allowances for the breakfast and evening meals when the following applies: Breakfast (morning): depart duty station prior to 6:00 am and extend the workday by 2 hours. Dinner (evening): return to duty station after 8:00 pm and extend the workday by 3 hours. The travel must involve a travel destination located at least 35 miles from the employee's regularly assigned duty station (vicinity) or home, whichever is less. Allowances for the breakfast and evening meals for employees working nontraditional shifts must have prior approval of OSBM 2. No. 3. 5.1.1 Per Diem Compensation Per diem compensation is not applicable for state employees, only to members of state boards, commissions, committees and councils who do not receive any salary from state funds for their services. Oklahoma Oklahoma s State Travel Reimbursement Act (STRA) requires overnight travel status to receive meal allowances (per diem). Here is Oklahoma s procedures for receiving per diem: Duration Test: The STRA provides for reimbursement for meals expenses only for periods that are "overnight." However, in reality, there are business trips that are not literally "overnight," but are of substantial duration to justify treatment as overnight to the extent of requiring the employee to get necessary sleep and rest to meet the demands of his/her work. Thus, to qualify for overnight travel, employees need not be away a full 24 hours or dusk to dawn, provided the trip is substantially longer than an ordinary work day, and it is reasonable for the employee to need and to get necessary sleep and rest to complete his/her work (based on IRS guidelines).
Oregon Response #1 Oregon pays the approved federal per diem for meals for non-overnight travel plus of course any transportation. It is reported as taxable income. Here is Oregon s policy on non-overnight meals: Meal Per Diem During Non-Overnight Travel. Meal allowances when there is no overnight stay are taxable income to the traveler. A meal per diem is permitted under the following conditions during non-overnight travel, within or outside of Oregon. a. Breakfast. Personnel must be on travel status for two hours or more before the beginning of their scheduled work shift to receive a breakfast allowance. b. Lunch. No allowance is provided for lunch during non-overnight travel unless the employee is attending an official business meeting and the meal is an agenda item, that was not included in the fee, and the cost and choice of having the meal were beyond the control of the employee. A receipt is required. Other circumstances may warrant an exception to the provision that no allowance is provided for lunch. The agency director or designee, board member or commission member may authorize such an exception when such payment provides a clear and distinct economic advantage to the agency and is critical and essential to the mission of the agency. c. Dinner. Personnel must be on travel status for two hours or more beyond the end of their scheduled work shift to receive a dinner allowance (see percentages in.112). Pennsylvania Here in Pennsylvania, we do not pay non-overnight travel per diem, with two exceptions. 1. First, we do reimburse employees in travel status up to $8 for a meal if they work more than two hours past their regular shift, and either they were 50 miles or more from their residence and headquarters or they didn t have two hours prior notice of the need to work overtime. 2. Secondly, some unions have successfully negotiated for reimbursement of lunch expenses in certain situations. Generally, employees must travel at least 15 miles and be away from their headquarters over the lunch period to be eligible. In most cases, qualifying employees are eligible for actual expenses up to $3.50. We do not subject employees in either situation to FICA taxes. Tennessee Texas Under the State of Tennessee Comprehensive Travel Regulations, "Reimbursement for a single meal (or meals) for employees on one-day travel status with no overnight stay is not permitted." We do reimburse in some occasional situations where an employee has custody of a prisoner, transporting a child, etc., and consider those reimbursements de minimus from a tax perspective. Texas pays non-overnight per diem for meals. It is taxable just like payroll. Texas handles the travel vouchers two different ways depending on how each agency prefers to pay. The non-overnight travel can be paid through the payroll system and taxes are withheld that day and submitted to IRS. They can be paid at any time (not just during regular payroll processing). The payroll system tabulates total taxable wages and withholdings each year. The other choice is that agencies can pay these travel vouchers through the voucher system and then a non-cash entry is made into the payroll system so that additional tax can be withheld on the next payroll.
Utah Utah does pay non overnight per diem if certain conditions are met by the traveler. The conditions are as follows: "Under the following conditions an employee may be authorized by their executive director or designee to receive a taxable meal allowance when their destination is at least 100 miles from their home-base and they do not stay overnight. The allowance is not considered an absolute right of the employee, especially if the budget of the agency is not adequate to handle this allowance. A meal allowance shall not be claimed or authorized for any complimentary meal(s) received by the employee. 1. Breakfast * When the individual leaves their home base before 6:01 a.m. 2. Lunch * When the trip meets one of the following conditions: a. The employee is on an officially approved trip of such duration as to warrant entitlement to breakfast and dinner. b. The traveler leaves their home base before 10:00 a.m. and returns after 2:00 p.m. c. The department director provides prior written approval based on unusual circumstances. 3. Dinner * When the individual leaves their home base and returns after 7:00 p.m." We consider these payments taxable as FICA and Medicare wages. Utah pays meal allowances and non-overnight per diem that are subject to FICA/Medicare through payroll and it is paid on the same pay frequency. Virginia 1. Virginia does not pay non overnight per diems. Business meals are reimbursable under certain criteria. 3. Virginia does not pay non overnight per diems. West Virginia Washington West Virginia does not pay. 1. Yes, the state does allow reimbursement for meals without an overnight stay. 2. The travel policies require agencies to comply with IRS publication #463 regarding the taxation of meals for non-overnight travel. The Office of Financial Management (OFM) issues travel policies in the State Administrative and Accounting Manual (SAAM) Chapter 10. The travel policies in SAAM are the minimum requirements, and agencies can be more restrictive in their own internal travel policies. Meal reimbursement for non-overnight travel is referred to as the 3 hour rule. A traveler must meet the following requirements to receive reimbursement for non-overnight travel (SAAM Subsection 10.40.50.b). Wisconsin The traveler must be in travel status for 3 hours beyond their regularly scheduled working hours (a total of 12 hours for an 8 hour employee), and the traveler must be in travel status for the entire agency defined meal period. http://www.ofm.wa.gov/policy/10.40.htm Wisconsin does not pay per diems for meals. We allow meal reimbursements of actual costs up to specified maximums for each type of meal (breakfast, lunch or dinner). To be eligible for the meal reimbursements the employee must be away from their headquarter city during specified time periods. If the travel does not include an overnight stay the meal reimbursements are considered taxable income for both FICA and Medicare and we withhold on these reimbursements. Wisconsin reimburses employee travel through the payroll system. This includes taxable meal reimbursements as well as non-taxable travel reimbursements. The payroll system calculates withholdings on the taxable travel and adds both taxable and non-taxable travel to the paycheck each pay period. Wisconsin processes payroll on a bi-weekly basis.