Temporarily-Away-From-Home Travel Expenses
Section 62 of the Internal Revenue Code (the Code) imposes income taxes on compensation for services, whether from employment or self-employment. Compensation for services includes the fair market value of benefits-in-kind. As a result, travel expenses, whether reimbursed to or paid on behalf of a worker, such as to an airline or hotel, are taxable income subject to withholding and reporting unless an exception applies.
Excludable Travel Reimbursements
Section 162 of the Code allows an exclusion from income for travel expenses for lodging and meals and incidentals (other than amounts which are lavish or extravagant under the circumstances) paid or incurred while the recipient is away from home in the pursuit of a trade or business. When these business expenses are made under an accountable plan as allowed by Section 62(c) and described in Treas. Reg. Section 1.62-2, they are not subject to withholding or reporting.
Therefore, in order for payments and reimbursements to be excluded from income, the travel expenses must:
If any one of these requirements is not met, the payments and reimbursements are subject to tax and withholding and reporting in accordance with their character of income unless another exception applies.
The business connection requirement is met only if the individual being reimbursed for travel is performing services for the employer as an employee or independent contractor (referred to hereafter as a “worker”). If the travel expenses are not in connection with such services, they are taxable unless another exception applies. (See the article “Travel Expenses” in the July/August, 2009 edition of the Crow’s Nest for further discussion of the business requirement.)
“Away From Home”
Section 162(a)(2) provides some relief for a worker who incurs substantial continuing expenses of a home which are duplicated by business travel away from home on a temporary basis, by allowing a deduction for the expenses of such travel.
To be "away from home" so as to claim traveling expenses, a worker must have a "tax home." Courts have held that for purposes of section 162(a)(2) a worker's "home" is generally the vicinity of the worker’s principal place of employment.
A worker’s residence, when different from the vicinity of the worker’s principal place of employment, may be treated as the worker’s tax home if the worker’s employment is "temporary" rather than "indefinite." A worker has a "home" when substantial continuing living expenses are incurred at a permanent place of abode.
The determination of whether a worker is away from home is factual. If a worker does not have a tax home to be away from, then the worker is not entitled to a deduction under section 162(a)(2). A worker without a tax home is deemed to have "carried his home on his back," to have been an itinerant, and is not entitled to a deduction because the worker is not "away from home."
Section 162(a) of the Code provides that the taxpayer shall not be treated as being temporarily away from home during any period of employment if such period exceeds one year (twelve elapsed months).
IRS issued Rev. Rul. 93-86, 1993-2 C.B. 71, to assist employers and taxpayers in determining when tax homes change to the new work location. This revenue ruling applies to foreign nationals as follows:
Employees from abroad
whose tax home has changed to the new work location in the United States
are not eligible for deductions for travel, food, or lodging at the new
work location. However, they might be eligible for certain moving expense
deductions. See IRS Publication 521, Moving Expenses for
information about taxable and nontaxable moving expenses. (They may
also be able to claim temporarily-away-from-home expenses while away from
their new U.S. tax home at other locations within or outside the United
If a worker is not away from home, reimbursed travel expenses are taxable under the same rules as other compensation paid to or on behalf of the worker unless another exception applies (such as exemption under a tax treaty).
expenses of an employee are wages subject to payroll taxes and Form W-2
reporting. Taxes related to the value of benefits-in-kind would have to be
withheld from salary or other cash compensation paid to the
Taxable travel expenses reimbursed to or on behalf of a nonresident alien independent contractor are subject to 30 percent withholding and reporting on Form 1042-S under Income Code 16.ęCopyright 2009 by Windstar Technologies, Inc. Windstar reserves all rights to this electronic material. Information contained in this publication is based on the best information available at the time of publication. While believing the information in this publication to be accurate, Windstar accepts no legal responsibility for its accuracy
Paula N. Singer, Esq. chairman of Windstar Technologies, Inc. and partner in the tax law firm, Vacovec, Mayotte & Singer, Newton, MA, has over 25 years of experience providing advice and compliance services to employers on cross-border employment matters. She is also the editor of "US Tax Compliance For Immigrants And Employers: The Lawyer's Complete Guide". To learn more, see: http://www.ilw.com/books/tax.shtm. For more information, visit www.windstar.com. For additional information, call 1-800-259-6398 or email: firstname.lastname@example.org.
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