Key Points
- To be tax-free, reimbursements need to be on a so-called accountable plan.
- Your actual expenses in excess of the allowance may be deducted to reduce your taxable income.
Though lodging and meal per diems may be provided tax-free to mobile professionals who maintain a permanent tax home while
on temporary (less than 12 months) assignment, car stipends or allowances are different.
In general, all payments made to an employee are taxable. The exception is those made as a reimbursement for travel expenses
that would be deductible by the employee. To be tax-free, reimbursements need to be on a so-called accountable plan, with
the employee providing proof of payment (e.g., receipts and/or logs), and the employer making reimbursements on a dollar-for-dollar
basis, or the employee returning any excess.
Lodging and meals vs. mileage
Because lodging and meals can be accounted for on a daily, or per diem, basis, the IRS commissioner has allowed for these
expenses to be paid tax-free without an accountable plan. Mileage, however, cannot be put on a per diem basis. Therefore, any stipend or allowance for your car—whether hourly, weekly, or monthly—is taxable and should be reported on your
W-2 form subject to tax withholding. If it is not included on your W-2, you are required to re-port it as a reimbursement
on 1040 Form 2106 (Unreimbursed Employee Expenses), reducing your other deductions, and therefore, subjecting the allowance
to tax.
The bottom line
Any vehicle expenses paid to you as an allowance are not tax-free. However, your actual expenses in excess of the allowance
may be deducted to reduce your taxable income.
The preceding discussion is general in nature, and should not be considered advice for any individual tax situation. You should
consult with your personal tax planning professional for specific guidance relating to your unique circumstances.
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