If your employees travel away from home as part of their jobs, your business may be allowed to deduct a portion of the ordinary and necessary expenses associated with this travel. That’s the good news.
The bad news is that maintaining adequate records to substantiate such expenses can be cumbersome and time-consuming. Employees must keep all receipts related to these expenses and also maintain records noting the time, place and business purpose of each expense.
To simplify things, the IRS allows employers to use per diem rates instead of reimbursing employees for their actual lodging, meal and incidental expenses. Three different per diem options are available:
- The regular federal per diem rate. This is the highest amount that the federal government will pay employees for these expenses when they are traveling away from home for business. These rates vary depending on the specific location and can be found at gsa.gov/perdiem.
- The standard meal allowance. This is the per diem rate that’s paid for meals and incidental expenses (or M&IE in IRS parlance). This rate also varies depending on the size of the locality — again, visit gsa.gov/perdiem to find out rates for specific cities.
- The high-low rate. Using this rate eliminates the need to keep a list of per diem rates for business travel in different cities. The current rate for most U.S. cities is $172, which includes $52 for M&IE. In certain high-cost cities, the rate is $259, which includes $65 for M&IE. New per diem rates will be announced by the IRS this fall and become effective on October 1, 2015.
Contact your financial advisor for more details about these rates and your options, including what records you should keep if you make per diem payments.