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I work for a small company, spending roughly 50% of my time on the road. The company has a reimbursement program for expenses that seems to be in compliance with IRS requirements. They have been adding the per diem allowance I receive for meals to the amount I'm paid as salary and then deducting federal and state taxes, FIRC, etc. from their total. Their claim is that I have to document all expenses to the IRS in order to get my money back when I file. I still don't see how this will allow me to get back my Social Security amounts, etc.

As Gail suggests, the issue is whether the reimbursement plan is "accountable" or "nonaccaountable." With the former, you substantiate expenses to the employer and the reimbursements are never included in your income. With the latter, the employer doesn't have to verify your expenses but does include the reimbursements in your income. You then must claim employee business expenses as a miscellaneous itemized deduction on Schedule A. You do not recover the FICA/Medicare, and 2% of your AGI is excluded from your total miscellaneou itemized deductions. IOW, the nonaccountable plan really bites, from the employee's standpoint.

The per diem allowances are a non-issue. They exist to eliminate the need to document those expenses to anyone, including the employer running an accountable plan.

Employers are not required to have accountable plans. Many don't because they think it will cost them money. You might want to get ahold of Publication 15, which has the withholding instructions. If your employer is basically running an accountable plan, i.e., you're documenting your expenses, it's costing itself money since the employer also has to pay FICA/Medicare, and I think FUTA, on nonaccountable reimbursements.

Phil Marti
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