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New York State Accounting System User Procedures Manual

Volume Name
CONTROLS AND SPECIAL PROCEDURES
Volume
XI
Date
03/31/06
Section Name
IRS One-Year Rule for Travelers
Section
8.0150

     Federal Law requires that if an individual's period of employment away from home at single location exceeds one year, corresponding travel expenses are not deductible. As such, the reimbursements must be included in gross income and subjected to withholding.

     The IRS published guidelines for applying the one-year rule. This section explains those guidelines and agency responsibilities in applying them.

HOW THE ONE-YEAR RULE WORKS

     The following information was obtained from Internal Revenue Topic 511 - Business Travel Expenses.

     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 will be treated as temporary in the absence of facts and circumstances indicating otherwise. The individual is therefore considered "away from home" and can deduct meal and lodging expenses.

     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 will be treated as indefinite, regardless of whether it actually exceeds one year. The individual is not "away from home" and thus cannot deduct meal and lodging expenses. Corresponding reimbursements must be included in gross income and subjected to withholding.

     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. Meal and lodging expenses for the period before the change are deductible. Those expenses occurring after the change are not deductible and must be included in gross income and subjected to withholding.

     The following examples illustrate the 1-year rule:

Example 1

     Betty accepted work in another city which is 250 miles from where she now works. Betty expected the work to last six months, after which she planned to return to her original work location. In fact, the employment lasted ten months, after which time she returned.

     Betty's employment is temporary and her travel expenses are deductible. She realistically expected the work to last for one year or less, and it did.

Example 2

     Same facts as Example 1, except that Betty expected the work to last 18 months but it was completed in ten months. Betty's employment is indefinite because she realistically expected the work would last beyond one year. The fact that it ended sooner is not relevant. Betty's travel expenses are not deductible.

Example 3

     Same facts as Example 1, except that Betty realistically expected the work to be completed in nine months. After eight months, Betty was asked to stay for seven more months (for a total of 15 months).

     Initially, Betty realistically expected the work to be completed within one year. However, after eight months this was no longer a realistic expectation. For eight months, Betty's employment is temporary. Travel expenses during that period are deductible. For the remaining seven months, her employment is indefinite. Travel expenses for this later period are not deductible.

AGENCY RESPONSIBILITIES

     In applying the one-year rule, agencies are responsible for the following:

1. When an employee is assigned a job that requires employment away from home, determine at the time of assignment whether it will last one year or more.

2. Periodically review employee travel assignments to determine whether the employee's status concerning the one-year rule has changed.

3. Include travel expense reimbursements in the wages of employees who are realistically expected to be in the same location for one year or more. In order to accomplish this, travel vouchers must be completed with IRS Code equal to 'T' and the IRS Amount equal to the travel expense reimbursement. Refer to Controls and Special Procedures Manual Section 8.0140 for more details on voucher preparation.