The IRS has released the simplified per diem rates that taxpayers can use to calculate reimbursements to employees for ordinary and necessary expenses incurred during business-related travel after September 30, 2014, and through 2015. The high-cost area per diem increases from $251 to $259 and the low-cost area per diem increases from $170 to $172, the IRS reported in Notice 2014-57.
Per diem rates
The IRS provides employers and employees with the option of claiming travel expenses based on the official per diem allowances, in lieu of substantiating actual travel-related meal and lodging costs by maintaining and providing adequate records or other sufficient evidence. The per diem amounts also satisfy the requirement that employees provide an adequate accounting to the employer of meal and lodging expenses.
High-low substantiation method
The IRS-approved per diem rate for high-cost areas is $259 ($194 for lodging and $65 for meals and incidental expenses). The IRS has designated locations in 23 states, including the District of Columbia, as high cost areas. These areas include: The Washington, D.C. metropolitan area, Philadelphia, New York City, Chicago, San Francisco, Denver, and others.
In addition, Notice 2014-57 added several localities to the list of high-cost localities: San Mateo/Foster City/Belmont, Calif.; Sunnyvale/Palo Alto/San Jose, Calif.; Glendive/Sidney, Montana; and Williston, N.D.
For all other areas, the IRS-approved per diem rate is $172 ($120 for lodging and $52 for meals and incidental expenses). The rates apply to per diem allowances paid for travel after September 30, 2014.
The rate for the incidental expenses only deduction is $5 per day for post-September 30, 2014 travel. The IRS explained in Rev. Proc. 2011-47 that the term “incidental expenses” has the same meaning as in the federal travel regulations issued by the General Services Administration (GSA) in 2011. These 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 definition of incidental expenses.
The special transportation industry meals and incidental expense (M&IE) rate for taxpayers in the transportation industry is $59 for any locality of travel in the continental United States (CONUS). The special transportation industry M&IE expense rate is $65 for any locality of travel outside the continental United States (OCONUS), which includes Alaska and Hawaii.
Notice 2014-57 is effective for per diem allowances for lodging, meal and incidental expenses, or for meal and incidental expenses only, which are paid to any employee on or after October 1, 2014, for travel away from home on or after October 1, 2014. For purposes of computing the amount allowable as a deduction for travel away from home, this notice is effective for meal and incidental expenses or for incidental expenses only paid or incurred on or after October 1, 2014.
A special “transition rule” is also available to the business, as first spelled out in Rev. Proc. 2011-47. For travel in the last 3 months of a calendar year—
- A payor must continue to use the same method (per diem method or high-low method) for an employee as the payor used during the first 9 months of the calendar year; and
- A payor may use either the rates and high-cost localities in effect for the first 9 months of the calendar year or the updated rates and high-cost localities in effect for the last 3 months of the calendar year, but only if the payor uses the same rates and localities consistently for all employees reimbursed under the high-low method.