How Per Diems are Used in Corporate World and the Tax Implications Regarding Meals/Entertainment

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Per diem can be defined as a daily stipend given to the employees for travel expenses, mainly covering meals, lodges and other minor expenses. In most cases, employees tend to use per diem to reduce the administrative cost, in that the employees do not have to incur personal expenses when on the clock. Another reason companies opt to use per diem reimbursement is to simplify the reimbursement process. Under the Internal Revenue Code (IRC) and the treasury regulations, per diem can be taxable or non-taxable, depending on the rules set by the employers. For instance, if the rules require that the employee brings out a report of the business expense, otherwise known as an accountable plan, then both the employer and employee are not subjected to any tax, as the payment is not included in the employee's income (U.S. Government Publishing Office, 2018). However, when a non-accountable plan is used, it is considered taxable income.
Regarding meals/entertainment, the IRC has included a 50% deduction limit on the cost incurred for meals that are directly related to the business. For instance, if an employer and an employee have a meal in a hotel during their business...