Are employees at your business who travel frustrated with documenting their expenses? Or perhaps you’re annoyed at the time and energy that goes into reviewing business travel expenses. There may be a way to simplify the reimbursement of these expenses. The IRS published the special “per diem” business travel rates for the fiscal year 2024 in Notice 2023-68, which went into effect on October 1, 2023. Taxpayers can use these rates to justify the amount they spend on travel-related lodging, food, and incidentals. (Taxpayers in the transportation sector are eligible to apply a unique rate.)
High-Low Per Diem Rate Method
A simplified alternative to tracking actual business travel expenses is to use the high-low per diem rate method. This method provides fixed travel per diems, which are based on rates set by the IRS (these rates vary depending on the location).
Under the high-low method, the IRS establishes an annual flat rate for certain areas with higher costs of living. Anyplace in the contiguous United States that isn’t designated as “high-cost” is automatically categorized as “low-cost.” For business destinations, the specific per diem rates may be replaced by the high-low method. High-cost cities include San Francisco and Boston. Certain places, including resort areas, are considered high-cost during only part of the year.
In other situations, such as when an employer pays the hotel directly or provides housing, employees may only be reimbursed for their incidental costs and meals. For employees who do not pay for or incur meal expenses for a calendar day (or part of a day) of travel, there is an additional $5 incidental-expenses-only rate.
If your business pays employees on a per diem basis, they are exempt from the standard IRS recordkeeping requirements. Under the per diem system, expense receipts are typically not needed. However, employees still need to provide proof of the date, location, and reason for the trip for work. Per diem reimbursements are typically not recorded on an employee’s Form W-2 or subject to income or payroll tax withholding.
2024 Per Diem Business Travel Rates
For travel after September 30, 2023, the per diem rate for all high-cost areas within the continental United States is $309. This includes $235 for housing and $74 for meals and other miscellaneous costs. For all other areas within the continental United States, the per diem rate is $214 for travel after September 30, 2023 ($150 for lodging and $64 for meals and incidental expenses). The high-cost area per diem increased by $12, while the low-cost area per diem climbed by $10 over the FY2023 levels.
Important: A number of guidelines and limitations apply to this technique. For instance, businesses utilizing the high-low technique for an employee are required to stick with it for all business travel reimbursement inside the continental United States for the duration of the calendar year. However, if the employee needs to go outside of the continental United States, may use any permissible method to reimburse that employee.
Employers are required to apply the same travel policy (per diem or high-low technique) for employees during the last three months of the year as they did for the first nine months. It should be noted that individuals who own 10% or more of the business are not eligible to receive per diem rates.
If your employees are traveling, it may be a good time to review the rates and consider switching to the high-low method. It can reduce the time and frustration associated with traditional travel reimbursement. Contact us for more information.
© 2021. Updated January 2024.