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New per diem rates for reimbursement of business travel expenses incurred after September 30, 2012; some expenses are no longer incidental expenses.

IRS Maintains Travel Per Diem Rates and Removes Some Incidental Expenses

  • 10/10/2012

IRS Maintains Travel Per Diem Rates and Removes Some Incidental Expenses

The IRS has issued the simplified per diem rates that taxpayers can use to reimburse employees for expenses incurred during business travel after September 30, 2012. The high-low per diems for the October 2012 through December 2013 period remain unchanged from last year’s annual update: $242 for high-cost localities and $163 for all other localities. The list of high-cost localities also remains the same. In addition, the IRS has highlighted that certain expenses are no longer included in the definition of incidental expenses.

Comment: Generally, per diem amounts approved by the IRS track the federal per diem rates published by the General Services Administration (GSA) for travel within the continental United States by federal government employees on official business. In August, GSA announced that the 2013 federal per diem rates would be unchanged from 2012. GSA explained that the rates were frozen in response to a White House directive requiring federal agencies to spend at least 30 percent less on travel expenses.

Per diem rates

In lieu of substantiating actual travel-related meal and lodging costs, the IRS provides optional per diem allowances, which employers and employees are deemed to have substantiated by adequate records or other sufficient evidence. The per diem amounts also satisfy the requirement that employees provide the employer an adequate account of meal and lodging expenses.

In Rev. Proc. 2011-47, the IRS announced that going forward it would not revise the annual revenue procedure that provides rules for using a per diem rate to substantiate the amount of an employee’s expenses for lodging, meal, and incidental expenses, or for meal and incidental expenses only, that a payor reimburses. Instead, the IRS would publish, as it has this year, an annual notice providing the special per diem rates and the list of high-cost localities. Taxpayers using the rates in Notice 2012-63 must comply with the rules in Rev. Proc. 2011-47, including the transition rules for per diem use in the current year’s fourth calendar quarter.

Incidental expense

In Rev. Proc. 2011-47, the IRS explained that the term “incidental expenses” has the same meaning as in the federal travel regulations. These regulations, issued by the GSA in 2011, describe incidental expenses as fees and tips given to porters, baggage carriers, bellhops, hotel maids, stewards or stewardesses, and others on ships. Transportation between places of lodging or business and places where meals are taken, and the mailing cost associated with filing travel vouchers and payment of employer-sponsored charge card billings, are excluded from the GSA’s definition of incidental expenses.

Comment: As a result of the revised GSA regulations, taxpayers using per diem rates may separately deduct or be reimbursed for transportation and mailing expenses, the IRS explained.

Comment: The rate for the incidental expenses-only deduction is $5 per day for post-September 30, 2012, travel, which is unchanged from the previous rate.

High-low method

The IRS-approved per diem rate for high-cost areas is $242 ($177 for lodging and $65 for meals and incidental expenses). The IRS-approved per diem rate for all other areas is $163 ($111 for lodging and $52 for meals and incidental expenses). The rates apply to per diem allowances paid for travel after September 30, 2012.

Comment: There are no changes in the list of high-cost localities for 2013 in Notice 2011-81.

Transportation industry per diem

Individual taxpayers that used the federal meal and incidental expense rates, or the special transportation industry rates, during the first nine months of 2012, cannot change to the other method for the individual until after January 1, 2013. After September 30, 2012, taxpayers in the transportation industry paying a per diem only for meals and incidental expenses may treat $59 as the meals and incidental expense rate for all localities within the continental U.S., and $65 as the meals and incidental expense rate for all localities outside the continental U.S.

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