IRS Releases 2023 Per Diem Rates

Travel is an essential aspect of doing business for many Atlanta companies. The opportunity to meet face-to-face with clients, and prospects, and attend national events is an important function for many executives. Although the use of Zoom has increased substantially over the past two years, business travel still plays an important role in client management, training, and new business development efforts. The intangible impact of meeting in person simply cannot be replicated online.

Despite the benefits, managing the expenses associated with business travel can be difficult. Not only are there formal policies to follow, but accounting must also review expenses incurred for meals and lodging. To make this process easier, the IRS establishes a Per Diem rate that employees can claim. It covers lodging, meals, and incidental expenses at a flat rate versus the actual charges of employment-related travel. The IRS recently released the annual update that is effective for business travel between October 1, 2022, and September 30, 2023. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

What Is Per Diem?

Per diem is an alternative reimbursement method for employees who travel away from home for business purposes. There are two different rates within the continental United States; travel to Alaska, Hawaii, and U.S. territories also have separate rates. Businesses may opt to use the rates on an annual basis instead of actual expenses for ordinary and necessary business expenses.  

Per diem rates are assessed depending on where the employee spends the night. Taxpayers can find out the per diem rate for any locality here.

Rates are for either lodging and meals combined or just meals. Taxes and tips aren’t included, and there’s a separate line item for incidentals like fees and tips. Self-employed individuals may only use per diem for meals.

Though using per diem rates instead of the actual expense method is more streamlined and simpler to implement, both methods still require original receipts and an expense report. Usually, per diem reimbursements are non-taxable to the employee, though there are scenarios where employer reimbursement can result in an additional tax burden for the employee.

High-Low Substantiation Method and High-Cost Localities

The high-low substantiation method provides taxpayers with a minimum and maximum amount of business travel expenses may be reimbursed.

In areas where the cost of living is higher, the corresponding per diem rate also increases; common high-cost localities are New York, Washington, D.C., and San Francisco, though there are dozens of areas where the higher rate is in effect for all or part of a year. All other areas have a reduced diem rate. 

It’s important to note that many high-cost localities have different effective dates for the new rates. For example, their calendar year could be June 1 – July or August 31, February 1 – March 31, and other variations. Companies whose employees travel to one of these destinations need to double-check the allowable rate for the correct calendar year.

Several new high-cost localities have been added. Some high-cost localities are only high-cost at certain times of the year. Sedona, Arizona; Key West, Florida; Martha’s Vineyard, Massachusetts; and Breckenridge, Colorado are four examples of localities that changed the portion of the year where the high-cost locality rate is in effect.

For the full list, refer to page 8 of IRS Notice 2022-44.

New Per Diem Rates

For business travel expenses beginning October 1, 2022, the following federal per diem rates are in effect:

• The current rate for high-cost localities in the continental U.S. is $297 per day.
• The rate for all other localities within the continental U.S. is $204 per day, an increase of $2 per day.
• Both high and low rates for daily meal allowances remain unchanged at $74 and $64 per day, respectively.

Incidentals, which are reimbursed at $5 per day, are fees and tips paid to hotel staff, porters, baggage handlers, and staff on ships.

When Does Per Diem Become Taxable?

Failing to follow a few best practices can result in per diem reimbursements that are taxable to employees. Being aware of the rules can help to prevent any surprises.

Employers should require complete expense reports within 60 days. For each expense, a completed expense report must include the:

• Date(s) and time(s) of the trip
• Place
• Amount
• Business purpose

Employers may also elect to pay more than the federal per diem rate; however, the excess amount will be taxable. They are permitted to pay less – if the policy is consistent. There are two methods in this instance:

• The lesser payment is considered payment for lodging or
• 40 percent of the payment is allocated to meals and 60 percent to lodging

An excess per diem amount can be easy to mistake, too. Rates vary according to location and employers are only responsible for paying three-fourths of the standard rate on the employee’s first and last days of travel.

Contact Us

The opportunity to claim Per Diem rates over actual expenses can simplify the process of claiming business travel expenses. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.