Can Airline Pilots Claim a Per Diem Tax Deduction?

For airline pilots, “per diem” is a daily allowance from an employer to cover meals and incidental expenses (M&IE) during work travel. While this system simplifies expense reporting, the tax treatment of these payments can be confusing. Understanding how per diem interacts with federal tax regulations is important for managing your finances.

Understanding Per Diem and Its Tax Treatment

The taxability of per diem payments depends on whether an employer’s reimbursement policy qualifies as an “accountable plan” under IRS rules. For a plan to be accountable, it must meet three criteria. The expenses must have a business connection, the employee must substantiate these expenses to the employer, and the employee must return any excess reimbursement in a reasonable time.

When an airline’s per diem plan meets these requirements, payments up to the federal M&IE rates are non-taxable. These non-taxable payments will not be included in the wages reported in Box 1 of the pilot’s Form W-2. Instead, the non-taxable per diem amount is often reported in Box 12 of the W-2 with the code “L,” showing the IRS it was paid under a qualifying plan.

If a reimbursement arrangement does not meet all three criteria, it is a “non-accountable plan.” Under such a plan, all per diem payments are fully taxable to the employee. These amounts are added to the pilot’s regular wages and are subject to income, Social Security, and Medicare taxes.

Any per diem paid for trips that do not involve an overnight rest, such as one-day trips, is considered taxable income. If an airline’s per diem payment is higher than the maximum federal rate, the excess portion is also treated as taxable wages.

The Deduction for Unreimbursed Employee Expenses

A significant change in tax law has impacted the ability of pilots to deduct work-related expenses. The Tax Cuts and Jobs Act of 2017 (TCJA) suspended the miscellaneous itemized deduction for unreimbursed employee business expenses for tax years 2018 through 2025. This means W-2 employee pilots cannot deduct job-related costs that exceed their employer’s reimbursement, including expenses for meals, uniforms, or union dues.

Before the TCJA, pilots could deduct the difference between their actual M&IE costs and their per diem reimbursement on Form 2106, subject to a 2% adjusted gross income (AGI) threshold. The TCJA eliminated this deduction for most employees, including pilots.

While the general rule prohibits these deductions, there are narrow exceptions. Certain taxpayers, such as Armed Forces reservists, qualified performing artists, and some government officials, may still deduct unreimbursed employee expenses. However, these exceptions do not apply to commercial airline pilots. The suspension is set to expire at the end of 2025 and may be reinstated for the 2026 tax year unless Congress extends it.

This change makes the employer’s accountable plan the primary way to cover these costs without tax consequences. The focus for pilots has shifted from tracking expenses for a personal deduction to ensuring compliance with their employer’s reimbursement plan.

Calculating Allowable M&IE Expenses

To determine if a per diem reimbursement is excessive and therefore partly taxable, it must be compared to the maximum amount set by the federal government. The government provides two methods for calculating the allowable Meals and Incidental Expenses (M&IE). The first uses standard per diem rates for specific localities published by the General Services Administration (GSA) for domestic travel and the Department of State for international travel.

The second, simpler method is the “special transportation industry M&IE rate.” This provides a single flat rate for any locality within the Continental U.S. (CONUS) and another for any locality outside of it (OCONUS). For October 1, 2024, through September 30, 2025, the special rate is $80 per day for CONUS travel and $86 per day for OCONUS travel. A pilot who uses this special rate must use it for all trips taken that year.

A specific rule applies to partial days of travel, such as the first and last day of a trip. For these days, the allowable M&IE amount is prorated to 75% of the full daily rate. For example, a pilot on a three-day domestic trip using the special rate would calculate their total allowable M&IE by taking 75% of the $80 rate for day one, 100% for day two, and 75% for day three.

This calculation results in a total allowable M&IE of $200 ($60 + $80 + $60). If the pilot’s employer paid a total per diem of $190 for the trip under an accountable plan, the entire amount would be non-taxable. If the employer paid $210, the $10 excess would be considered taxable income.

Required Recordkeeping

Although the personal deduction for employee expenses is suspended, maintaining detailed travel records is still required to substantiate expenses under the employer’s accountable plan. This substantiation is what allows per diem payments to be non-taxable. Without these records, an employer might have to reclassify all per diem as taxable wages.

Per IRS Publication 463, a pilot must document the dates of travel, departure and arrival times, and the location of each layover for every trip. The business purpose is self-evident for an airline pilot’s regular duties.

A pilot’s flight log or official company schedule typically contains all the necessary information to meet these requirements. These documents serve as adequate records because they are created at the time of travel. It is important to retain these records for at least three years from the date of filing the corresponding tax return.

The purpose of this recordkeeping is to substantiate travel for the employer’s plan, not to track actual costs. Pilots do not need to keep receipts for meals or incidentals when using the per diem method. A travel log that proves the time, place, and business nature of the travel is the key record to maintain.