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, effective as of October 1, 2024, 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 for the high-low substantiation method.
Per diem rates make reimbursements easier for employers and employees. These rates are fixed amounts paid to employees to cover lodging, meals, and incidental expenses incurred during business travel. Employees are not taxed on per diem payments if they are equal to or less than the federal rate and are accompanied by a proper expense report. Employers have the option to pay more or less than the federal per diem rate, but any excess payment is taxable to the employee.
Self-employed taxpayers can still deduct business-related expenses on a Schedule C, unlike employees under the Tax Cuts and Jobs Act. However, per diem rates are less beneficial for self-employed individuals as they can only use them for meal costs. The new meals and incidental expenses per diem rates for the transportation industry as of October 1, 2024, are $80 for travel within the continental United States and $86 for travel outside the continental United States.
The rate for incidental expenses remains at $5 per day, regardless of location. The high-low substantiation method includes special rates for high-cost localities, with per diem rates of $319 for travel to high-cost areas and $225 for travel to other localities within the continental United States. The meals and incidental expenses per diem rates for these destinations are $86 for high-cost localities and $74 for other areas within the continental United States.
Several high-cost localities have been added, removed, or changed in terms of their designation. Areas such as Los Angeles, Palm Springs, South Lake Tahoe, and Boise have been added to the list, while places like Mill Valley/San Rafael/Novato in California and Pensacola in Florida have been removed. The full list of high-cost localities can be found in the IRS Notice 2024-68.
Per diem rates are a convenient way for employers and employees to handle business travel expenses. Correct use of per diem rates can prevent additional taxes on employees. By providing proper documentation and basing reimbursements on federal rates, compliance with IRS guidelines is more likely. Employers can choose to pay less than the federal rate, but overpayment without sufficient records may result in additional taxes on the employee. More information on per diem rates and high-cost localities can be found on the General Services Administration website.
