The IRS has issued the 2023-2024 special per diem rates for taxpayers to use in substantiating the amount of ordinary and necessary business expenses incurred while traveling away from home. These rates are effective from October 1, 2023, to September 30, 2024.
The special per diem rates include:
- the transportation industry meal and incidental expenses (M&IE) rates,
- the rate for the incidental expenses only deduction,
- the rates and list of high-cost localities for purposes of the high-low substantiation method.
In this blog we focus on the high-low substantiation method.
High-Low Substantiation Method
The high-low substantiation method is a way for employers to give their employees a daily travel allowance. This covers things like hotels, meals, and other expenses. Instead of using different rates for different locations, this method uses just two rates for the entire Continental United States. This method is only for employers reimbursing their employees’ travel costs. It’s not for employees or self-employed taxpayers to calculate their own business expense deductions. If an employer reimburses its employees’ travel expenses within these limits, then these reimbursements are considered substantiated, or proven. Employees must still prove the time, date, place, and business purposes of the expenses within a reasonable period of time.
For purposes of the high-low substantiation method, the per diem rates are:
- $309 for travel to any high-cost locality, of which $74 is considered for meals,
- $214 for travel to any other locality within CONUS, of which $64 is considered for meals.
For example, let’s consider that an employee from a company based in Texas is sent on a 3 days business trip to Atlanta, Georgia, which is considered a high-cost locality by the IRS. So, for this trip, the company can use the high-cost rate for Georgia. The total amount to be paid to the employee per the high-low substantiation method for travel expenses for this trip should not exceed $309 per day, so no more than $927 for the entire trip. This amount includes lodging, meals, and incidental expenses.
Please note that IRS updates the per diem rates annually, based on the General Services Administration’s rates that take effect on October 1 each year, so it’s always a good idea to check the current rates before planning a business trip. Also, remember that there are specific rules and requirements for using the high-low substantiation method, so it’s important to understand these before deciding to use this method. Check Publication 463 for more information about the high-low substantiation method.
50% Limitation for Meals
Something to consider: the Consolidated Appropriations Act, 2021 allowed businesses to fully deduct their restaurant meal expenses, instead of the previous 50%, for the years 2021 and 2022. However, starting from 2023, businesses can only deduct 50% of these expenses.
This material is for informational purposes only. It does not constitute tax, legal or accounting advice.