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Travel and Entertainment Expenses
6. The company hired an employee to work at a remote location for about a year. Since he won't be working anywhere near his current home, the company will pay him a per diem, pegged to the government's rate for the locality. Since our per diem doesn't exceed the government's rates, there's no withholding, right?
Wrong. The payment is taxable. Per diems and other reimbursements compensate employees for their out-of-pocket traveling expenses. But this employee isn't traveling. Instead, he's changing his tax home. A tax home is generally, but not always, the exact locale of employees' principal place of employment.
The company could, however, pick up his moving expenses and even help him sell his home tax-free.