Appendix I. Taxability of Travel and Business Expense Reimbursements

Tax rules have a significant effect on our Travel policies and procedures. In order for business travel expense reimbursements to remain tax-free to the employee in the future, the following procedures must be adhered to.

In the case that travel policy is not followed, a particular item may, according to IRS regulations, “be treated as salary." This means that MIT must withhold all appropriate taxes from these reimbursements and include those payments in the employee's compensation, along with the withheld taxes, on the employee's Form W-2.

The payment method used to reimburse the employee or pay employee expenses is not a factor in determining taxability. Both per diem and actual expense arrangements are subject to these rules.

The following is a list of the most important items contained within the regulations:

Travel Voucher Submission
MIT's policy states that an employee must submit a Travel Voucher within 30 days following the completion of a business trip.

The IRS regulations require an employee to submit a Travel Voucher within sixty days following the completion of a business trip.
If an employee fails to meet the IRS deadline, the entire amount of the expenses incurred by the employee must be treated as salary to the employee. In such a situation, the employee would be entitled to claim an itemized deduction for these expenses when filing his/her federal tax return. This IRS regulation will be uniformly applied to all individuals.

Travel Advances (Including Pre-Paid Airline Tickets)
If the employee has drawn a travel advance prior to the trip and the advanced amount exceeds the actual expenses, the employee must return the excess monies within 120 days following the completion of the trip.

If the employee fails to meet this deadline, the excess monies must be treated as salary to the employee, and MIT must withhold all appropriate taxes.
Even if this taxable status applies to the excess advance, the monies must still be returned to MIT. MIT cannot reverse the entries that resulted in the withholding of taxes and the reporting of the expenses as income. In such a situation, however, the employee would be entitled to claim an itemized deduction on his/her federal tax return in the year in which the employee returned the excess monies.

Temporary Travel Status
Faculty, staff & students who satisfy the definition of temporary travel status may be reimbursed, tax free, for the costs associated with that travel. Such costs would include, but are not limited to:

vehicle (plane, train, car, etc.) costs,
lodging expenses such as hotel or rent for temporary housing,
food,
tips and
conference registration fees

Definition
An individual is considered to be in travel status when he/she is temporarily away from his/her tax home on MIT business. For example:

A permanent MIT employee or student who normally works on campus and who is away from their tax home on MIT business.
A visiting employee, whose tax home is in another state or another country and who is here at MIT for a period of one year or less (see below).

Length of Travel Stay
The following is a summary of the important issues regarding “Temporary Travel Status” for the purpose of tax free reimbursements as defined by the IRS:

If employment away from home in a single location is realistically expected to last (and does in fact last) for one year or less, the employment move is considered to be temporary and therefore the related costs and expenses are NOT taxable to the employee.
If employment away from home in a single location is realistically expected to last for more than one year, or there is no realistic expectation that the employment will last for one year or less, the employment move is considered to be indefinite, regardless of whether the move actually exceeds one year. Under this condition, all related costs and expenses are required to be treated as taxable income to the employee and subjected to all appropriate tax withholdings, except to the extent that they qualify for favorable tax treatment as moving expenses.
If employment away from home in a single location initially is realistically expected to last for one year or less, but at some later date the employment is realistically expected to exceed one year, that employment will be treated as temporary (in the absence of facts and circumstances indicating otherwise) until the date that the taxpayer's realistic expectation changes. Under this condition expenses incurred up to the point that the employee or employer believed the travel arrangement not to exceed one year would be treated as tax free to the employee. From that point forward all expenses would be treated as taxable income to the employee and subject to all appropriate tax withholdings.

Storage Costs
Storage costs for an employee’s personal belongings incurred while the employee is in “temporary travel status” are taxable to the employee and must be treated as salary.

Club Memberships
Membership fees or dues in professional organizations continue to remain tax free.

Dues and membership fees for any kind of private club or organization are subject to differing tax rules:

Taxable to the employee: to the extent that the club or organization is used for personal interests
Tax free: to the extent that the club or organization is used for MIT business purposes