Menu

Managing travel-related tax depends on finding an employee’s tax home

RFP
Travel-related taxMegan Mobile is a business executive who works at her employer’s headquarters in Blacksburg, Va., but she often travels to two of the company’s other offices — one in Arlington, Va., a 540-mile round trip, and one in Christiansburg, Va., a 16-mile round trip.  

Mobile and her employer want to make sure they’re correctly interpreting IRS requirements covering taxes for travel reimbursement. For example, if she’s reimbursed for travel expenses to Arlington and Christiansburg, are those reimbursements taxable? The answer is no, as long as she’s considered away from home. Sec. 162(a)(2) allows a deduction for traveling expenses “while away from home in the pursuit of a trade or business.”

If Mobile isn’t away from home, the answer depends on whether the work location is temporary, according to Rev. Rul. 99-7. If it’s temporary, the reimbursements aren’t taxable, but if the location isn’t temporary, they are taxable.

To figure out whether the IRS considers Mobile to be away from home, we have to determine her tax home. Under IRS rules, Mobile has only one tax home, and it is her principal place of business. Rev. Rul. 54-147 addresses the tax home when an individual has more than one place of business. Here are the factors used to determine the tax home:

  1. The total time the employee ordinarily spends at each business post
  2. The degree of business activity the employee performs at each post
  3. Whether the financial return related to the business post is significant or insignificant

Let’s assume the headquarters in Blacksburg is Mobile’s tax home. The next question is whether she is considered away from home when she’s in Arlington or Christiansburg.

Here’s what IRS revenue rulings say:

  • “Away from home” means the duration was long enough “as to require stop for substantial sleep or rest” (Rev. Rul. 73-529).
  • The trip must last “substantially longer than an ordinary day’s work” (Rev. Rul. 75-432).
  • The trip “need not be for an entire 24-hour day or throughout the hours from dusk until dawn, but it must be of such duration or nature that the taxpayer cannot reasonably be expected to complete the round trip without being released from duty, or otherwise stopping the performance of their regular duties for sufficient time to obtain substantial sleep or rest” (Rev. Rul. 75-170).

Based on this guidance, Arlington is away from home. The 540-mile round-trip distance requires a four-hour trip each way. After spending the day at the office in Arlington, Mobile needs to sleep or rest before returning to Blacksburg. Christiansburg, however, isn’t away from home, because it’s only a 16-mile round trip and not far enough away to require Mobile to need sleep or rest.

Whether Mobile’s reimbursements for transportation between her personal residence and Christiansburg are taxable depends on whether the Christiansburg work location is temporary. If it is, the reimbursements are excluded from income, but if not, the reimbursements are included in income.

To determine whether a work location is temporary, Rev. Rul. 99-7 lists the following three rules:

  1. If Mobile is realistically expected to work in Christiansburg for one year or less, transportation reimbursements are excludable from income.
  2. If Mobile is realistically expected to work in Christiansburg for more than one year (even part-time), that isn’t a temporary location; regardless of whether she ultimately works in Christiansburg for more than one year, transportation reimbursements aren’t excludable from income.
  3. If Mobile is initially realistically expected to work in Christiansburg for one year or less, but at some later date, she’s realistically expected to work in Christiansburg for more than one year, the location is considered temporary until the date the expectation changes; initial transportation reimbursements are excludable from income, but subsequent transportation reimbursements after the expectation changes aren’t excludable from income.

As noted earlier, an individual has only one tax home, so even if he or she works multiple places, it’s critical to determine where that home is and whether other work locations are temporary.

Where and how people work has evolved. Employers need to know the tax considerations for varied arrangements, including when an employee works from a home office.


Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.