The destinations for such travel can be as varied as the length of the trip. The duration of a business traveler’s trip may be a day, several weeks or several months, but due to policy and tax requirements, typically not more than a year.
Business travelers frequently are not on a company’s radar for tracking by human resources or payroll because they are not covered by a different compensation policy and have not been identified as presenting compliance risks to the employer. Operating without a proper tracking mechanism can expose the employee to unexpected tax liabilities in the host location and the company to exposure related to its corporate tax liability as well as payroll and withholding requirements.
Employers who are aware of the tax complexities presented by both domestic and international business travelers often struggle to identify who their business traveler population even is. In most cases more needs to be done to proactively manage these risks if the employer wants to limit corporate tax risks and potential penalties for noncompliance in its payroll withholding processes.
In general, expenses incurred by business travelers (e.g. airfare, hotels, meals, and local transportation) are considered to be deductible business expenses and thus are not considered taxable income to the employee when the employee is working “away from home”. However, the determination of whether an employee is “away from home” is dependent upon whether the work location is considered temporary. If the destination is considered a non-temporary work location, expenses incurred in traveling there would be considered nondeductible commuting expenses and all local travel, housing and meals would be considered taxable benefits in kind.
All individuals filing a U.S. tax return must have obtained a U.S. tax identification number (TIN). Most U.S. citizens and residents use their social security number as their TIN. However, business travelers to the U.S. are not always eligible to obtain a social security number, depending on the type of visa used to enter the U.S. and conduct business. If they are not they must request an individual taxpayer identification number (ITIN) from the IRS.
Tax authorities both at the federal and state levels are targeting business travelers and their employers due both to the high level of noncompliance and to raise additional revenue. By leveraging corporate data available during routine audits, such as travel records and expense reports, the tax agents are identifying nonresident business travelers within their borders. Of particular interest to companies with business travelers inbound to the US, the IRS Foreign Payments Practice group is focused on enforcing the withholding and information reporting rules and regulations pertaining to nonresident aliens and foreign entities. With increased communication and coordination between immigration and tax authorities, individual business travelers are also facing increased enforcement activity.