02-23-1994 Council Agenda - Laserfiche WebLink

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TAUTGES, REDPATH & CO., LTD. CERTIFIED PUBLIC ACCOUNTANTS MEMO TO OUR CLIENTS January 25, 1994 Re: 1) Payroll Tax Reporting and Withholding on Expense Allowance Arrangements, and 2) Notice of 1994 Mileage and Per Diem Rates Treasury Regulations require withholding of federal income taxes and social security taxes on non - accountable expense allowances or arrangements. Consequently, such payments must be included on the employees annual Form W -2. A non - accountable expense allowance is an arrangement whereby the employer pays an employee a fixed amount of money, a fixed formula of money or any other type of payment to be used for employment related expenses without requiring the employee to 1) substantiate the use of the funds, 2) establish a business connection for the use of the funds, and 3) to return any excess payment over the amount substantiated. Such arrangements include, but are not limited to, monthly or weekly auto, entertainment and/or travel allowances or advance payments for these types of expenses. If the three items above are required of the employee by the employer, all or a portion of the allowance or arrangement is ma subject to the withholding rules in the following circumstances: A. To the extent the unused and unsubstantiated portion is refunded to the employer within 120 days after it was expected to be incurred; B. To the extent it is substantiated with required receipts and/or usage records within 60 days of being incurred; or C. To the extent of the following per diem rates (effective January 1, 1994) if the business purpose, contact, place and time are substantiated: Mileage 29¢ per recorded business mile. Lodgjng, Meals and Incidentals I. iligblLow Method: $152 ($36 considered meals and incidentals) per recorded day for lodging, meals and incidental expenses incurred for travel away from home in a "high cost locality" and/or $95 ($28 considered meals and incidentals) per recorded day for lodging, meals and incidental expenses incurred for travel away from home in an "other cost locality". U. Federal Per Diem Rate: The annually published rates for specific individual localities per recorded day for lodging, meals and incidental expenses incurred for travel away from home at the specific locality. III. Transportation Industry Rate: The transportation industry may use $32 per day for meals and incidentals for all U.S. travel. If you would like a list of the "high cost locality" or a list of the most recently published specific locality per diems, please contact us. (Please note the following special rules: 1) the use of the above methods to substantiate business lodging, meals and incidental expenses is not available for employees related to the employer, 2) you must use Item II above for per diem allowances that only include meals; and 3) the amounts detailed in Lodging, Meals and Incidentals above must be prorated allowing one fourth of the amount for each 6 hour quarter of the day (ie., midnight to 6 a.m„ 6 a.m. to noon, noon to 6 p.m„ and 6 p.m. to midnight) during any portion of which the employee is traveling away from home in connection with the performance of services as an employee.] Employees and self-employed taxpayers may use the mileage rate and federal per diem rates for meals and incidentals to determine their deduction for these items on their individual income tax return instead of actual costs incurred, if the substantiation requirements in item "C." above are complied with. If you have questions regarding this memo, please contact us. Sincerely, TAUTGES, REDPATH & CO., LTD. Certified Public Accountants Page 72 ft 4810 White Bear Parluvai Wll-r.lm He.H Minnesota 55110 • 612/126,7( • FAk /426 -5004 • Member of HLB International