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Northwest OH Legal Blog

Wednesday, November 27, 2013

Internal Revenue Service Announces Special Per Diem Rates for Business Travel Expenses Incurred on or after October 1, 2013

The Internal Revenue Service (“IRS”) has announced the special per diem rates that can be used to substantiate the amount of business expenses incurred for travel away from home on or after October 1, 2013. Use of these rates to set per diem allowances permits employers to treat the amount of certain categories of travel expenses as substantiated, without requiring that employees prove the actual amount of those expenses. (Employees must still substantiate the time, place, and business purpose of their travel expenses.)

According to IRS rules, per diem allowances must be paid at or below the applicable federal per diem rate, a flat rate or stated schedule, or in accordance with another IRS-specified rate or schedule. The amount deemed substantiated, however, is the lesser of— 

  • the allowance or
  • the federal per diem for the same set of expenses.

The IRS notice sets forth rates for use under the optional high-low substantiation method, special rates for transportation industry employers, and the rate for taxpayers taking a deduction only for incidental expenses.

For travel within the continental United States, the optional high-low method allows employers to use one per diem rate for high-cost locations and another for all other locations.  (The federal per diem rates are location-specific.)  Employers may use the high-low method for substantiating lodging, meals, and incidental expenses, or for substantiating meal and incidental expenses only (“M&IE”).

Beginning October 1, 2013, the high-low per diem rates that can be used for lodging, meals, and incidental expenses will increase to $251 for travel to high-cost locations and $170 for travel to other locations.  The high-low M&IE rates will remain at $65 for travel to high-cost locations and $52 for travel to other locations.  The announcement includes several changes to the list of high-cost locations.  No locations were removed from the list.

The special rate for the incidental expenses deduction that applies beginning October 1, 2013 is unchanged at $5 per day. Final federal travel regulations issued in October 2012 kept the narrower definition of incidental expenses adopted by the interim regulations, so the expenses covered by that rate have not changed.

The IRS’s per diem rules can greatly simplify the process of substantiating business travel expense amounts. Per diem allowances that are deemed substantiated may be retained by the employee, even if such allowances exceed what the employee actually spent.  However, if an employer pays more generous allowances (exceeding what will be deemed substantiated) than permitted under IRS rules, the employer must require substantiation, require return of the excess, or treat the excess as taxable wages.  Otherwise, the entire allowance may become taxable.

 If you have any questions or concerns regarding this communication, please do not hesitate to call Allotta | Farley Co., L.P.A. at (419) 535-0075 or email megarner@allottafarley.com.


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With offices in Toledo and Lima, OH Allotta Farley Co., L.P.A. serves clients throughout northwest OH with various legal matters. Areas of service include Allen County, Ashland County, Auglaize County, Crawford County, Defiance County, Erie County, Fulton County, Hancock County, Hardin County, Henry County, Huron County, Lucas County, Marion County, Mercer County, Morrow County, Ottawa County, Paulding County, Putnam County, Richland County, Sandusky County, Seneca County, Van Wert County, Williams County, Wood County, Wyandot County.

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