Home sweet home! It may have just gotten a little sweeter for employees, thanks to a new proposed rule out of IRS.
The Service has issued the Local Lodging Expenses rule, which states that there may be circumstances where your company can reimburse employees for lodging expenses they incur while not away, without having to include them as income.
Of course, it’s not as simple as that. IRS has spelled out all sorts of conditions and situations where the new rules would – and would not – apply.
Here’s a rundown of what you can expect.
Safe harbor qualifications
Normally, companies can reimburse employees without taxing them on it, for lodging for business-related trips.
But with the new rules, you will also be able to treat local lodging as business expenses – if they meet certain safe harbor requirements:
- The lodging is necessary for the employee to either participate in or be available for a business meeting, conference, training activity or other work-related function.
- The lodging doesn’t last longer than five calendar days or happen more frequently than once a quarter.
- Your company must be the one to require the employee to stay overnight, and
- The lodging can’t be considered lavish, extravagant or offer any significant recreational component.
Of course, that all hinges upon your company maintaining an accountable plan in the first place. To do so (as per Publication 15):
- Expenses must have paid or incurred while performing services as your employees. They can’t be an amount that would have otherwise been paid by the employee.
- Employees must substantiate within a reasonable time period (ideally 60 days).
- Employees must return any amounts in excess of substantiated expenses within a reasonable period of time (in general, in 120 days).
It’s not a done deal, yet — comments on the proposed rules are due by July 25. But until the final version’s released, IRS says your company can rely on the proposed version to shape your policy.
We’ll keep you posted.
Info: The proposed rule was published in the Federal Register on April 25, 2012.