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 2024-2025 rates have just been released and take effect October 1st 2024.

Per diem explained

Given the many expenses business travelers need to track (hotels, meals, etc.), the IRS permits employers to pay per diem rates—daily allowances that cover meals, lodging, and incidental costs, including tips and fees for porters, baggage carriers, and hotel or ship staff.

Key considerations:

• The rates vary depending on where your employees travel.
• Taking advantage of these per diem rates gives travelers a guideline for expenses and simplifies policy making for employers.

• 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, 2024....

• The per diem rate for travel to any high-cost location is $319, up from $309 last year.

• Travel to any other locality is now $225, up from $214 last year.

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

• The special meals and incidental expenses for taxpayers in the transportation industry are $80 for any locality of travel within the CONUS (Continental U.S.) and $86 for any locality of travel outside CONUS (up from $69 and $74).

*The amount of the $319 high rate and $225 low rate that is treated as paid for meals is $86 for travel to any high-cost locale and $74 for travel to any other location within the CONUS, up from $74 and $64.

What areas are considered “high cost”?

Notice 2024-68 lists all high-cost localities.

*IMPORTANT:

Employees can easily misuse business travel expenses, which is why the IRS closely monitors them. While per diem rates simplify recordkeeping and reduce the hassle of tracking receipts, IRS scrutiny remains high.

It's crucial for employees to note that under current tax law, business expenses are no longer allowed as itemized deductions, making accurate expense reporting more critical than ever.

To ensure compliance with all regulations, it's wise to consult a tax advisor for guidance. Reach out to us for assistance.