The IRS has released its annual update of special per diem rates for taxpayers to use in substantiating business expenses while traveling away from home. The new rates are effective as of October 1, 2024, and are to be used for per diem allowances paid to employees for travel away from home. These rates include those for the transportation industry, incidental expenses, and high-cost localities.
Per diem rates are a fixed amount paid to employees to compensate for lodging, meals, and incidental expenses incurred when traveling on business. Employers can use these rates to reimburse employees for combined lodging and meal costs or meal costs alone. Per diem payments are not considered part of the employee’s wages for tax purposes if they are equal to or less than the federal per diem rate and the employee provides an expense report with necessary details.
Employees are not required to stick to the per diem rate and can pay more or less. However, if an employer pays more than the federal rate, the excess will be taxable to the employee. Self-employed taxpayers can also receive per diem rate reimbursements, but the rates are typically only useful for meal costs as they can still deduct business-related expenses on a Schedule C.
The special meals and incidental expenses per diem rates for taxpayers in the transportation industry are $80 for any travel within the continental United States and $86 for travel outside the continental United States. The rate for incidental expenses remains $5 per day. There are also special rates for high-cost localities, with a per diem rate of $319 for travel to high-cost areas and $225 for other localities.
Several high-cost localities have been added and removed from the list, including areas like Los Angeles, California, and Sedona, Arizona. Per diem rates matter for both employers and employees, as they provide a convenient way to substantiate business travel amounts. Failure to follow the rules can result in taxes on employees for unqualified payments, making it important to adhere to the guidelines.
Employers can choose to pay less than the per diem rate, but if they pay more without proper substantiation, the excess will be taxable to the employee. Having a baseline for reimbursement, with adjustments for expensive destinations, helps streamline record-keeping and allows the IRS to ensure that travel expenses are legitimate and not disguised compensation. More information on per diem rates can be found in Notice 2024-68 and on the General Services Administration website.
