A Big Break for Per Diems?

There has been a significant amount of relief passed through various bills due to the coronavirus. While the employee retention credit, paid leave credit and paycheck protection program received a lot of the glory, something smaller yet potentially impactful passed with the Consolidated Appropriations Act, 2021 (CAA 2021). The CAA 2021 includes a provision that certain business meals provided by a restaurant and paid or incurred in calendar years 2021 or 2022 are 100% deductible instead of only 50%. Naturally, this brought up a lot of questions surrounding per diems since per diems are for the reimbursement of certain expenses, one of which is meals. The IRS recently issued guidance in Notice 2021-63 regarding per diems which helps answer those questions.

Notice 2021-63 makes it clear that the temporary 100% deduction for meals under CAA 2021 applies to the meal portion of the special per diem rate for motor carriers with drivers who are subject to the hours of service rules. The notice also clarifies that taxpayers must properly substantiate expenses in accordance with Rev. Proc. 2019-48 for the deduction to apply. The incidental portion of the special per diem rate is currently a maximum of $5 and without further guidance is still 80% deductible and should be accounted for separately.