Sunday, March 14, 2010

Do Legislators Per Diem Payments Pass the IRS Smell Test?

In Pennsylvania there is a question whether undocumented maximum per diem payments our legislators draft to themselves qualify for automatic non taxable treatment by the IRS. House Rule 14 of the Pennsylvania House of Representatives allows the payment scheme but it does not supercede IRS rules?

Rule 14
Members' and Employees' Expenses
A member who attends a duly called meeting of a standing or special committee of which he or she is a member when the House is not in session or who is summoned to the State Capitol or elsewhere by the Speaker, or the Majority or Minority Leader of the House, to perform legislative services when the House is not in session shall be reimbursed per day for each day of service, plus mileage to and from the member's residence, at such rates as are established from time to time by the Committee on Rules but not in excess of the applicable maximum mileage rate authorized by the Federal Government. For travel to any location for committee meetings or for travel to the State Capitol for any reason, members cannot receive reimbursement in excess of the applicable maximum per diem rate authorized by the Federal Government. These expenses shall be paid by the Chief Clerk from appropriation accounts under the Chief Clerk's exclusive control and jurisdiction, upon a written request approved by the Speaker of the House, or the Majority or the Minority Leader of the House.

Please read this publication from the IRS.

Do I include per diem payments in my employee’s wages?

Per diem payments are not part of the employee’s wages if the payment is equal to or less than the federal per diem rate and the employer receives an expense report from the employee.

What does an expense report need to include?

The report must include:

· The business purpose of the trip,

· The date and place of the trip, and

· Receipts for lodging (if using the meals-only per diem rate).

The employee must file the expense report with the employer within a reasonable period of time (60 days).

If any of these requirements are not met, the payment is taxable to the employee.

When are per diem payments taxable?

Payments will be taxable to the employee when any of these situations are true:

· No expense report is filed with the employer,

· The expense report filed does not include the date, time, place, amount and business purpose of the expense,

· A flat amount is given to the employee and no expense report is required, or

· Per diem is paid in excess of the allowable standard federal rate.
These per diem payments listed above would be treated as wages and employment taxes are due from the employer.

It would appear that the media and the Legal Counsel for the legislators need to explore this matter further. It is incumbent(just how many do you think will survive this) upon them to provide answers in light of what happened in Massachusetts between its legislature and the IRS.

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