Pilot Travel Expenses and Per Diem Update, Tax Year 2000
Air Line Pilot, February 2001, p. 28
By Elizabeth B. Koby, Managing Attorney, ALPA Retirement and Insurance Department
As the 2000 tax filing deadline approaches, the time has come again for an update on the U.S. rules governing taxes on U.S. pilot travel expenses and per diem payments. These complex rules are fully explained in "Taxation of Pilot Travel Expenses, Per Diem–Tax Year 1999," March 2000, which is also on ALPA’s website. To reach it on the web, go to http://cf.alpa.org, select Members Only, enter your password, then select Departments, then select R&I, and look under Related Links for Retirement and Insurance. That article remains applicable, with the exceptions noted below, for the 2000 tax year.
Of course, you are urged to consult your tax advisor when applying these rules to your situation.
In preparing your 2000 U.S. tax return, you will be referring to the federal government’s per diem rates that apply to business travel occurring during 2000. These per diem rates consist of two components, one covering meals and incidental expenses (M&IE) and the other covering lodging expenses. Because your employer pays for your lodging separately, you will be concerned primarily with the M&IE rates.
The General Services Administration (GSA) issues the M&IE per diem rates that apply to the 48 contiguous states and the District of Columbia, collectively called "CONUS" (Continental United States). For business travel to CONUS destinations in 2000, five M&IE per diem rates—$30, $34, $38, $42, and $46—apply, the same as for 1999.
The M&IE per diem rates for other business travel destinations, collectively called "OCONUS" (for Outside CONUS), are revised monthly by the State Department (for all foreign countries) and periodically by the Department of Defense (for Alaska, Hawaii, and the U.S. territories and possessions). For many of the hundreds of OCONUS destinations listed, the 2000 M&IE per diem rates well exceed the maximum CONUS rate of $46.
All of the 2000 M&IE rates are available via ALPA’s and GSA’s websites. To reach the CONUS and OCONUS M&IE rates through ALPA’s website, follow the instructions mentioned previously in this article. To access the CONUS and OCONUS M&IE rates through GSA’s website, go to http://www. gsa.gov/travel.htm
Besides the new M&IE rates, a few changes have been made to the rules explained in the article for the 1999 tax year as they apply to 2000 tax returns. These are described below.
Using 2001 CONUS M&IE rates for last quarter 2000
In September 2000, the GSA issued new M&IE rates for CONUS business travel effective for the federal government on Oct. 1, 2000. For the private sector, these rates will apply to business travel in 2001, and also, at an employee’s or an employer’s option, to business travel from Oct. 1, 2000, through Dec. 31, 2000.
In comparing the new M&IE rates for 2001 to the rates for 2000, the GSA states that 30 percent of the rates increased over 2000, 43 percent remained the same, and 27 percent decreased.
Itemized deduction limit
For the tax year 2000, employers and employees in the transportation industry may now deduct 60 percent of their expenses for business meals, including expenses that are deemed substantiated by applying the federal M&IE rates. The 50 percent deduction limit continues to apply to all employers and employees who are not in the transportation industry.
Under the special rule applicable to the transportation industry, the deduction limit is 60 percent for 2000 and 2001, 65 percent for 2002 and 2003, 70 percent for 2004 and 2005, 75 percent for 2006 and 2007, and 80 percent for 2008 and later years.
All other rules relating to an employee’s itemized deduction for business travel continue to apply, as described in the article for the 1999 tax year, with a clarification regarding "incidental expenses." In determining the amount of your itemized deduction for business travel expenses, the amount that the federal M&IE rates deem substantiated covers meals and "incidental expenses." Any incidental business expenses not included within the M&IE rates are deductible (subject to the 60 percent limit discussed above and if your aggregate miscellaneous itemized deductions exceed 2 percent of adjusted gross income, as discussed in the 1999 tax year article).
The GSA says that the CONUS M&IE rates do not include as "incidental expenses" taxicab fares, telephone calls, and necessary charges for transferring, storing, and checking your baggage, or your laundry, cleaning, and pressing expenses for CONUS travel of 4 days or more. Included within the M&IE rates, however, are charges and tips for porters and baggage carriers.
Optional standard M&IE rates
As explained in the article for the 1999 tax year, the IRS provides an optional rule under which pilots (and other employees in the transportation industry) may apply a single CONUS M&IE rate in lieu of the five published CONUS M&IE rates, and/or use a single OCONUS M&IE rate in lieu of the hundreds of published OCONUS M&IE rates. For the 2000 tax year, these optional M&IE rates remain at $38 for CONUS business travel and $42 for OCONUS business travel.
You may elect to apply the optional rate to all CONUS travel, all OCONUS travel, or all CONUS and OCONUS travel.
For the benefit of your tax advisor, the official document governing the taxation of pilot travel expenses and per diem payments applicable in 2000 is IRS Rev. Proc. 2000-9, issued Dec. 21, 1999.