Non-Profit Organization and Per Diem

[JohnH]

Can an employee of a non-profit organization be reimbursed under a Per Diem arrangement when traveling out of the country on organization business? It would be much easier than keeping detailed receipts, but I'm just wondering if there are restrictions on this.

[jsamans]

Sure.

Can an employee of a non-profit organization be reimbursed under a Per Diem arrangement when traveling out of the country on organization business? It would be much easier than keeping detailed receipts, but I'm just wondering if there are restrictions on this.

From IRS Pub 463, Chapter 1, "Meals:"

Who can use the standard meal allowance. You can use the standard meal allowance whether you are an employee or self-employed, and whether or not you are reimbursed for your traveling expenses.

Use of the standard meal allowance for other travel. You can use the standard meal allowance to figure your meal expenses when you travel in connection with investment and other income-producing property. You can also use it to figure your meal expenses when you travel for qualifying educational purposes. You cannot use the standard meal allowance to figure the cost of your meals when you travel for medical or charitable purposes.

* * *

I'm thinking you may be asking because you wonder whether travel on behalf of a nonprofit constitutes "charitable purposes." No: whether the organization exists to make a profit or not, an employee acting as an employee may use the Per Diem rate. Charitable purposes applies to purposes that are charitable in the context of the filer's own return.

Whether the organization will reimburse the full Per Diem rate is another matter. Mny nonprofits (and some for-profits) set their own reimbursement amounts on a per-meal basis rather than using the Federal M&IE rate, which can be quite high for overseas travel.

[JohnH]

I wasn't as clear as I should have been with the original question.

I'm wanting to be sure it's OK to reimburse a full-time employee of a 501(c)3 for domestic and overseas travel on a per-diem basis in order to relieve them of some responsibility for keeping up with every meal and hotel receipt. I'm new to non-profit organization accounting & tax matters and am trying to get up to speed on some of the details.

[jsamans]

I wasn't as clear as I should have been with the original question.

I'm wanting to be sure it's OK to reimburse a full-time employee of a 501(c)3 for domestic and overseas travel on a per-diem basis in order to relieve them of some responsibility for keeping up with every meal and hotel receipt. I'm new to non-profit organization accounting & tax matters and am trying to get up to speed on some of the details.

Ah; I see. With just a few exceptions, the IRS permits an employer to reimburse an employee under an accountable plan using the "regular federal per diem rate," which is the sum of the Federal meals, incidentals, and lodging rates for the locale. The most impacting exception is that employees who are related to the employer, such as shareholders, may not be reimbursed for lodging on the basis of a Per Diem rate and must always provide lodging receipts (but may be reimbursed for M&IE using the Per Diem rate), but I'm not aware of any exception that would make an employee of a 501(c)(3) ineligible for the regular rate.

[JohnH]

Just to follow up on this question, would it be acceptable for a non-profit organization to adopt a policy allowing the employee to choose EITHER a per diem rate or actual expenses for travel overseas when the situation calls for it? I ask because this employee sometimes travels where it is common to use credit cards, but in other locations they must deal almost entirely in cash. It isn't always possible to obtain receipts when buying food at local eateries or even when staying in local lodging in some third-world countries, so the employee often comes up short. Authorizing a selective per diem would enable the employee to avoid the hassles in these situations.

[JohnH]

I'm still working through this issue and would appreciate any other additional input anyone would like to provide. When the employee of this non-profit travels overseas, there are often times when they must use only cash because credit cards aren't always accepted in some locations. So on a given trip there may be some lodging paid for by the organization credit card, and other times paid by cash. So I'm thinking they will account for all lodging and M&IE on a single report, then reduce by amounts paid via credit card, with the remainder being reimbursable to the employee.

If that makes sense, then another question arises. Let's assume the employee is traveling somewhere which has a per diem allowance of $200 lodging and a $110 M&IE allowance. They move from one location to the other over a period of 4 days, paying cash for 2 nights at the first city and credit card for 2 nights at the other city. Further, assume the actual lodging cost is $150 at each city and no M&IE are charged to the credit card. Would they reduce their claim for reimbursement by the actual $300 paid via credit card, or by the $400 allowable for lodging for the 2 nights the credit card is used?

[TaxGuyBill]

Maybe I'm misreading this, but any expenses paid directly by the organization's credit card are NOT part of the per diem. It is just a company expense and NEEDS a receipt.

The per diem is used to reimburse employee's for their out-of-pocket expenses, and avoid the need for receipts. There still needs to be some documentation of when the employee is out-of-town on business and paid their own expenses. I would think the employee should submit an "accountable plan" expense report to the employer, but rather than receipts, it can just be a list of the days the employee paid their own expenses.

If receipts are difficult to come by, the employee could pay for everything themselves, and be reimbursed using the per diem (preferably with an accountable plan expense report). That would qualify as a 'receipt' for the organization's expenses.

Does that help at all???

[JohnH]

It helps somewhat. The reality is that in some cases it is possible to use the organization's credit card, but in other cases it is impractical to do so. This can happen on the same trip due to the ability of some lodging facilities to accept credit cards while others cannot. (We are talking about third-world travel here in many cases, so the payment practices can differ form one city to the next, or even within the same city). It is preferable to pay by credit card for safety reasons due to the employee not having to carry as much cash, but there are times when cash must be used. So the question becomes, how do we handle this mixed-payment expense accounting administratively?

The second question is should we revert to actual lodging expenses when the credit card is used, or can we apply the per diem rate for the locale and then simply offset the actual against the total per diem when the credit card is used? This would result in an occasional overpayment to the employee if we use the second method, but that is already the case when the organization's credit card is not in the picture anyhow.

[TaxGuyBill]

First, as a side note, my comments are directed at a business. Although I think a non-profit needs to abide by the same rules, doing wrong usually wouldn't affect any tax due.


Is it the employee's cash, or is the employee just holding the organization's cash?

If receipts are a problem, an accountable plan expense report from the employee would count as a receipt. If the organization is directly paying for it (either by cash or credit card) the organization needs to have actual receipts to use the expense. In other words, if receipts are a problem, the company should have the employee for for EVERYTHING, and then reimburse the employee under an accountable plan. The employee could either use their own cash or their personal credit card.

For the mixed-payment, there are potentially TWO things going on. One is a 'direct' expense when the organization directly pays for the lodging with it's own money (either cash or credit card). The second is reimbursing the employee for their out-of-pocket expenses, by using an accountable plan. They are completely separate from each other and shouldn't mix.


For your second question, the organization will only deduct the lodging expenses it actually PAYS. It pays the expenses either directly (with cash or credit card, but requires receipts) and it pays for it by reimbursing the the employee (usually using the per diem rate). The organization can only deduct the 'lodging per diem' if it actually PAYS that amount to the employee. The 'lodging per diem' is ONLY a provision for reimbursing employees. It is NOT like the meal per diem that can be used on a tax return for a deduction.


Do those thought clarify it a little bit?

[mastertaxguy]

Perhaps reading a reference book might be helpful.

I'm still working through this issue and would appreciate any other additional input anyone would like to provide. When the employee of this non-profit travels overseas, there are often times when they must use only cash because credit cards aren't always accepted in some locations. So on a given trip there may be some lodging paid for by the organization credit card, and other times paid by cash. So I'm thinking they will account for all lodging and M&IE on a single report, then reduce by amounts paid via credit card, with the remainder being reimbursable to the employee.

If that makes sense, then another question arises. Let's assume the employee is traveling somewhere which has a per diem allowance of $200 lodging and a $110 M&IE allowance. They move from one location to the other over a period of 4 days, paying cash for 2 nights at the first city and credit card for 2 nights at the other city. Further, assume the actual lodging cost is $150 at each city and no M&IE are charged to the credit card. Would they reduce their claim for reimbursement by the actual $300 paid via credit card, or by the $400 allowable for lodging for the 2 nights the credit card is used?

1. First, it doesn't matter what status the unrelated employer is: profit or non profit.
2. The Tax Book, Chapter or Tab 8, covers this type of thing fairly well.
3. You mention non-US travel: TTB Pp. 8-12-13 provides helpful concise guidance. Does anyone look at that book?
4. There are separate per diems for travel expenses outside the continential United States. See TTB 8-12, right column, bottom of the page.
5. There is NO PER DIEM FOR LODGING for tax deduction purposes, foreign or domestic CONUS. An employer per diem is not controlling. Period. See TTB Pp. 8-13, left column, near the top of the page.
6. The State Department estabishes per diem rates for foreign areas not coverd by the IRS (which mostly deals with contiential US, separate rates for Alaska, Hawaii, Puerto Rico, Guam, Midway, etc. The TTB has the web link for this information.
7. Of course, documentation and/or records need to support the business nature of the travel.
8. Payment of expenses via an employer credit card, as noted previously, does require supporting documentation (receipts). Also, the charge on Page 8-13 of The Tax Book, left column, middle of the page, may be helpful on tax return reporting for the employee, self-employed person, and perhaps even the employer.
9. Employee is not entitled to tax free payments of the difference between per diem and actual expenses paid via company credit card. When using such a card, the actual expenses may likely exceed the per diem, save the incidential per diem of $5.00 a day. \
10. If the employee pays their own way, has a right to see reimbursement but does not seek reimbursement for business expenses incurred for the employers business, there is not deduction allowed under current rules. TTB Pp. 8-12, right column, top half of the page.