Taxing per diem and auto allowances

Our company has recently undergone an accounting review and it was determined that we were not following IRS guidelines in our paying out of per diem and auto allowances.  It seems that we have 2 choices: to call it an accountable plan and collect receipts from our employees every week and NOT tax that money, or to call it a non-accountable plan and tax it while paying it out and tell our employees to save all their receipts and show those as a business expense while doing their taxes.

We chose the non-accountable method because it seems impossible to get all of our employees to hand in receipts weekly... and they'll retain their receipts if they know they'll get money back at tax time.

The problem is... when we tax per diem and auto it's throwing them all in a higher tax bracket and taking a huge bite out of their paycheck.  Nobody's happy about it and I'm looking for advice. 

What does every other construction company do about paying out per diem and auto allowances?  All of our employees have worked at other construction companies in the past... and they all say they have never heard of being taxed on per diem or auto allowances.  Is every other company skirting around these IRS guidelines, or have we been led down the wrong path?

Any help would be appreciated.

Parents
  • 0

    Sounds correct to me.  See Publication 15 on irs.gov website.  You could issue the checks separately (as a "Second" check for example) to avoid throwing them into a higher bracket each time you pay them.  Could you get the receipts once a month to save employer taxes as well?  We've had trouble getting all receipts in past and improved that by attaching a clip to the dash board of each vehicle specifically for them to keep hold of the receipts and then at weekly meetings, remind them to turn in receipts.  

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  • 0

    Sounds correct to me.  See Publication 15 on irs.gov website.  You could issue the checks separately (as a "Second" check for example) to avoid throwing them into a higher bracket each time you pay them.  Could you get the receipts once a month to save employer taxes as well?  We've had trouble getting all receipts in past and improved that by attaching a clip to the dash board of each vehicle specifically for them to keep hold of the receipts and then at weekly meetings, remind them to turn in receipts.  

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