December 30, 1999
To: Campus Staff
From: Laura Saunders
Re: Federal Taxation of Meals
The Office of Financial Management, for the State of Washington, has informed us that effective January 01, 2000, the Internal Revenue Service (IRS) will start enforcing their Taxable Fringe Benefit Tax Law. The existing policies of the State of Washington have not been in compliance with IRS regulations for some time, and after extensive negotiations and a one year delay, we now have to come into compliance. What this means for you, as a state employee, is that with some very limited exceptions, when you are reimbursed for a college related meal this will be considered taxable income to you and tax deductions will be taken EXCEPT WHEN YOU ARE IN OVERNIGHT TRAVEL STATUS OR THE MEAL IS IN CONNECTION WITH A COLLEGE BUSINESS MEETING. Federal Income, Social Security, and Medicare tax deductions must be take from employees’ pay and remitted to the IRS with a matching employer contribution for Social Security and Medicare taxes.
State of Washington travel regulations do permit you to be reimbursed for some meals under a rule known as the "Three-Hour Rule" and this is the category of reimbursement that is now taxable. Washington policy allows reimbursement for meals occurring more than three hours beyond your normal working time.
According to the IRS regulations, these meal reimbursements are to be reported as taxable income, unless an employee is required to stay away from home overnight or is away long enough that the employee needs to get sleep or rest to properly perform duties. The IRS has researched court cases in an attempt to provide guidelines on how to interpret which non-overnight travel situations "require rest or sleep" and how these could be considered for non-taxable treatment. However, court decisions vary, making this a difficult interpretation, and we believe that in most cases meals under this category will be considered taxable. A discussion paper, prepared by the State Financial Accounting Division, is available from the Business Office to provide additional clarification and examples. In addition, a new state travel voucher will go into in effect January 01, 2000 and changes are being made to the travel manual. Lois Eriksson in the Business Office is the Highline guru for travel questions and you should consult her for help in filling out your travel voucher.