Copyright© 2006 by School Services of California, Inc.

                                      Volume 19                   For Publication Date: December 1, 2006             No. 25

By the Way . . .

Per Diem Expense Reimbursements. The Internal Revenue Service (IRS) has issued Revenue Ruling 2006-56 as guidance regarding per diem paid to employees and the tracking of such reimbursements. This ruling could have taxing implications for both employers and employees, depending upon the current practices that are in place. The ruling only affects reimbursement rates that are higher than the federal per diem rates, which vary by geographical location. 

Specifically, if employers are not tracking the excess reimbursement paid to employees over and above the federal per diem rates, and do not require employees to substantiate or pay back unapproved amounts over and above the federal per diem rates, then the entire amount could be subject to income tax and employment tax.  

This new ruling was prompted by abuse of tax-free expense reimbursements noted in industries other than school districts, but the ruling applies to any employers who use a per diem allowance to reimburse employee expenses.  

This ruling will not become effective until after December 31, 2006, so, there is time, although not much, to make changes to current practices if necessary.