Business travelers have a lot of expenses to keep track of- hotels, restaurants, taxis, etc. The IRS makes it easy for business travelers by allowing the use of “per diem” rates, which are daily allowances to compensate for lodging, meals and incidental expenses incurred on business trips. The rates are updated every year. The 2023-2024 rates take effect October 1st 2023.

Per diem explained

Since business travelers have a lot of expenses to log (hotels, meals, etc.) the IRS allows employers to pay employees per diem rates, or daily allowances to compensate for meals, lodging, and incidental expenses (includes fees and tips paid to porters, baggage carriers, hotel staff, and ship staff).

Some important details:

• Taking advantage of these per diem rates gives travelers a guideline for expenses and simplifies policy making for employers.

• The rates vary depending on where your employees travel.

• Per diem rates are not considered part of the employee’s taxable wages, as long as the employee provides an expense report and the payments do not exceed the federal per diem rate.

The new rates

The IRS establishes a yearly flat rate for certain areas with higher costs of living—known as the high-low substantiation method. Areas are considered “low cost” if they are not listed as “high cost”.

So, starting October 1st, 2023....

• The per diem rate for travel to any high-cost location is $309, up from $297 last year.

• Travel to any other locality is now $214, up from $204 last year.

• Incidental expense allowances remains unchanged at $5 per day for any location.

• The special meals and incidental expenses for taxpayers in the transportation industry are $69 for any locality of travel within the CONUS (Continental U.S.) and $74 for any locality of travel outside CONUS.

*The amount of the $309 high rate and $214 low rate that is treated as paid for meals is $74 for travel to any high-cost locale and $64 for travel to any other location within the CONUS, unchanged from 2022.

What areas are considered “high cost”?

Notice 2023-68 lists all high-cost localities.

It’s easy for an employee to take unfair advantage of business travel expenses, which is why the IRS is extremely critical. While per diem rates can help cut down recordkeeping requirements and other complications associated with logging receipts and all expenses... you have to be mindful of IRS scrutiny.

Employees must beware: under current tax law employee business expenses are no longer allowed as itemized deductions so the expense report provision is more important than ever. It’s best to consult your tax advisor to make sure your business and employees are complying with all the regulations listed above.