Employees’ Guide to Travel Expenses
Employers generally pay for your travel expenses when you are traveling as part of your job. They may be covered at the time of the expense by providing an allowance, an employee credit card, or a prepaid card. However, some businesses may have you pay the expenses and then reimburse you.
IRS rules on travel expenses
Most business travel expenses are deductible if you are traveling outside of your tax home. Your tax home is your main place of business or work, not necessarily where you live. This tax home usually encompasses the whole city or area in which you work. Although you cannot claim travel to or from your residence from your permanent place of work.
To claim travel expenses, you must be traveling outside of the area of your tax home for longer than a work day. Additionally, the trip must be long enough to necessitate rest in order to work on your trip. If you meet the requirements to claim your travel expenses, you should remember that these expenses need to be ordinary and necessary. You cannot claim any extravagant expenses or personal expenses.
If you are in a temporary location for longer than a year, expect to be in a location longer than a year, or will be in the temporary location for an indefinite period of time, you will be taxed on any travel expenses your employer covers.
If you expect to be in a location for less than a year and then find out you will be there for over a year, any travel expenses your employer covered up to the time you were informed that you would be in the temporary location for over a year are not taxable, but any travel allowance or reimbursements after that are taxable.
What are travel expenses?
Once you find that you can claim travel expenses, here are some expenses the IRS allows.
- The cost of travel by bus, car, train, or plane from your home to your business destination
- Transportation costs for getting from a train station or airport to your hotel or to get from your hotel to your work or meeting location.
- The shipping of baggage or display or sample material from your permanent workplace to your temporary workplace
- Laundry and dry cleaning
- Tips for services that are related to acceptable expenses
- Lodging and meals that are not for entertainment purposes
- Business calls during your trip as well as business communications through faxes and other communication devices
- You can claim the use of your car at your business destination by using the standard mileage rate or actual expenses, along with parking fees and business-related tolls. Although if you use a rental car, you can only deduct the portion of the car used for business purposes. The easiest way to track your mileage is to use a mileage tracking app such as Driversnote. The app can automatically track your mileage and allow you to easily categorize your trips.
- Other similar and necessary expenses, such as renting a computer or transportation to a meal.
Rates for travel expenses
For many eligible expenses, you will just save your receipt. Then, you can claim 100% of the expense that is not reimbursed as long as it is reasonable and ordinary. Additionally, for car expenses, you can use actual expenses or the standard mileage rate. You can ask what your employer would prefer. With either method, you should keep track of business-related tolls and parking fees. The IRS standard mileage rate for business travel for 2023 is 65.5 cents per mile.
If you are given a travel allowance, you will still want to carefully track your expenses to substantiate them if needed. It is very important to have your travel expenses covered since, due to the Tax Cut and Jobs Act, unreimbursed employee expenses will not be tax deductible until 2026.
Are travel reimbursements taxable?
Most reimbursements for ordinary and necessary travel expenses for temporary travel are not taxable. However, if the work at the temporary location is expected to last longer than a year or for an indefinite period of time, the reimbursement is taxable. Also, travel reimbursements for workers that do not have a tax home are taxable. This could apply to workers, such as construction workers that are constantly changing work locations and do not have any primary location where they work.
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