Legislator Per Diem Payments: Are They Taxable Income?
This information is intended to provide general guidance to help legislators and their tax preparers in handling legislative per diem payments. Legislators should consult with income tax experts for specific requirements relating to individual circumstances.
All legislator per diem payments not exceeding the amount allowed by federal law that are made to legislators living more than 50 miles from the Capitol are reimbursements made under an accountable plan, are not taxable income of the legislator, and are not subject to withholding or reporting. The difference between the amount allowed by federal law for reimbursement and the actual amount of per diem paid are considered unreimbursed expenses and, subject to certain limitations, may be a "miscellaneous items" deduction by the legislator.
Legislator per diem payments made to legislators who do not live in Helena but who live within 50 miles of the Capitol are not substantiated reimbursements and are thus reported as income. Withholding is made against these payments. All legislative lodging and meal expenses actually incurred by these legislators are unreimbursed expenses and, subject to certain limitations, may be a "miscellaneous items" deduction by the legislator.
Legislator per diem payments made to legislators who reside in Helena are reported as income and are subject to withholding. A legislator residing in Helena may not claim meal and lodging expenses incurred in Helena.
All legislator per diem payments made to a legislator whose home is more than 50 miles from the Capitol are employee reimbursements under an accountable plan for the following reasons:
Under 26 U.S.C. 162(h), a legislator is considered to have substantiated living expenses if the legislator's place of residence is more than 50 miles from the Capitol.
Federal law provides one type of accountable plan for when the employee's "lodging plus meals and incidental expenses" per diem reimbursement is substantiated (26 U.S.C. 62(a)(2)(A), 26 CFR 1.62-2(c)(2)).
Excess Per Diem Payment
The amount considered substantiated under federal law cannot exceed 110 percent of the amount payable to federal employees for per diem within the U.S. For Montana, the applicable 2009 reimbursement rate (110 percent of the $121 rate published by the U.S. General Services Administration pursuant to 41 CFR Ch. 301 App. A) is $131.10. The per diem payment made to legislators is $103.69 per legislative day, set according to 5-2-301(4), MCA.
Reimbursements paid "under an accountable plan are excluded from the employee's gross income, are not reported as wages or other compensation on the employee's Form W-2, and are exempt from the withholding and payment of employment taxes (Federal Insurance Contributions Act (FICA), Federal Unemployment Tax Act (FUTA) . . .)". (26 CFR 1.62-2(c)(4)).
Montana legislators were paid per diem for 113 regular legislative days at $103.69 per day, for a total of $11,716.97. 26 U.S.C. 162(h)(2)(A) considers per diem substantiated during legislative session breaks of up to 4 days. Montana law provides for reimbursement only for breaks of 3 days. During the regular session, there was a 4-day break from April 10 through 13. State per diem was paid for 3 days during the break, but because the break did not exceed 4 days, federal law allowed 4 days as substantiated per diem days. Federal law then allows substantiation of 114 regular days at $131.10 a day for a total of $14,945.40. Legislators received $3,228.43 less in per diem payments ($14,945.40 - $11,716.97) than was considered substantiated under federal law. The $3,228.43 is an unreimbursed business expense and may be a miscellaneous itemized deduction on a 1040 Schedule A, subject to the 50 percent meals allocation under 26 U.S.C. 274(n)(1)(A) ($44 of the daily per diem, or 36 percent, is considered meals and incidental expenses) and the requirement that miscellaneous itemized deductions must exceed 2 percent of adjusted gross income.
Legislators living more than 50 miles from the Capitol do not have their per diem payments reported on their W-2 Forms and might be able to claim the $3,228.43 as an unreimbursed business expense that is a miscellaneous itemized deduction under federal law.
Under 26 U.S.C 162(h)(4), the special provisions allowing use of the federal per diem rate do not apply to legislators living within 50 miles of the Capitol. Therefore, those legislators must follow the provisions of 26 U.S.C. 274(d) and must specifically substantiate all lodging and meal expenses. Because 26 U.S.C. 274(d) requires out-of-town travel before a person can claim lodging and meal expenses, a legislator who lives in Helena cannot claim any meal or travel expenses for session activities occurring within Helena.