New Business Travel Per Diem Rates Are Effective on October 1

Written by Nico P. Saborse | Oct 19, 2023 6:00:00 PM

Are you and your employees frustrated by the time-consuming task of documenting and reviewing travel expenses? The IRS offers simplified methods for reimbursing employees' out-of-town lodging, meals and incidental expenses. Here's what you'll need to know to determine if this simplified approach is right for your business.

High-Low Method

Under the "high-low method," the IRS establishes an annual flat rate for certain areas with higher costs of living. All locations within the continental United States that aren't listed as "high-cost" automatically fall into the low-cost category. The high-low method may be used in lieu of specific per diem rates for business destinations. Examples of high-cost areas include San Francisco, Boston and Washington, D.C. (See the chart below for a complete list by state.)

Under some circumstances—for example, if an employer provides lodging or pays the hotel directly—employees may receive a per diem reimbursement only for their meals and incidental expenses. There's also a $5 incidental-expenses-only rate for employees who don't pay or incur meal expenses for a calendar day (or partial day) of travel.

The following items aren't considered incidental expenses:

  • Transportation between places of lodging or business and places where meals are taken, and
  • The mailing cost of filing travel vouchers and paying employer-sponsored charge card billings.

You should consider reimbursing employees separately for these expenses, and then deducting the amounts as ordinary business expenses.

No More Receipts

If your company uses per diem rates, employees don't have to meet the usual recordkeeping rules required by law. Receipts of expenses generally aren't required under the per diem method. Instead, your organization simply pays the specified allowance to employees.

But employees still must substantiate the time, place and business purpose of the travel. Per diem reimbursements generally aren't subject to income or payroll tax withholding or reported on the employee's Form W-2. It's also important to note that per diem rates can't be paid to individuals who own 10% or more of the business.

No Deductions for Employees' Unreimbursed Travel Expenses

Miscellaneous itemized deductions for individual taxpayers have been suspended through 2025, under current tax law. These deductions include such items as tax preparation costs, investment expenses, union dues and unreimbursed employee business expenses. Under prior law, taxpayers could deduct miscellaneous itemized deductions on their personal tax returns to the extent that the total exceeded 2% of adjusted gross income.

So, unless your business has formal expense reimbursement policies and procedures in place, your employees won't be able to deduct any business-related travel expenses on their personal returns. Instead, through 2025, they'll be forced to pay out-of-pocket for unreimbursed out-of-town lodging, meals and incidental expenses. If your company doesn't have a formal expense reimbursement plan, it could be at a disadvantage when trying to attract and retain employees who travel regularly.

On the other hand, employer-reimbursed travel expenses aren't taxable to the employee. And your organization can deduct reimbursed travel expenses as an ordinary business expense.

Updated Rates

The IRS recently updated the per diem rates for business travel for fiscal year 2024, which started on October 1, 2023. Under the high-low method, the per diem rate for all high-cost areas within the continental United States is $309 for post-September 30, 2023, travel ($235 for lodging and $74 for meals and incidental expenses). For all other areas within the continental United States, the per diem rate is $214 for post-September 30, 2023, travel ($150 for lodging and $64 for meals and incidental expenses). Compared to the prior simplified per diems, the high-cost area per diem has increased $12, and the low-cost area per diem has increased $10.

The IRS also modified the list of high-cost areas for post-September 30 travel. The following locations have been added to the high-cost list:

  • Yosemite National Park, California,
  • Tampa/St. Petersburg, Florida,
  • Atlanta, Georgia,
  • Missoula, Montanta,
  • Saratoga Springs/Schenectady, New York,
  • Eugene/Florence, Oregon, and
  • Montpelier, Vermont

The following locations have been removed from the high-cost list:

  • Los Angeles, California,
  • Durango, Colorado,
  • Portland, Oregon, and
  • Vancouver, Washington

In addition, certain tourist-attraction areas only count as high-cost areas on a seasonal basis. Starting on October 1, the portion of the year in which the following locations are high-cost localities has changed:

  • San Diego, California,
  • Fort Lauderdale, Florida,
  • Fort Myers, Florida,
  • Fort Walton Beach/DeFuniak Springs, Florida,
  • Miami, Florida,
  • Vero Beach, Florida,
  • Portland, Maine,
  • Hilton Head, South Carolina,
  • Manchester, Vermont,
  • Seattle, Washington, and
  • Washington, D.C.

Important: This method is subject to various rules and restrictions. For example, if you use the high-low method for an employee, you must continue to use it for all reimbursement of business travel expenses within the continental United States during the calendar year. Your company may use any permissible method to reimburse that employee for any travel outside the continental United States, however.

For travel during the last three months of a calendar year, you must continue to use the same method (per diem or high-low) for an employee as you used during the first nine months of the calendar year. Also, your organization may use either:

  1. The rates and high-cost localities in effect for the first nine months of the calendar year, or
  2. The updated rates and high-cost localities in effect for the last three months of the calendar year, as long as you use the same rates and localities consistently for all employees reimbursed under the high-low method.

Deductions for Employers

In terms of deducting amounts reimbursed to employees on a company's tax return, employers must treat meals and incidental expenses as a food and beverage expense that's subject to the 50% deduction limit on meal expenses. For certain types of employees—such as air transport workers, interstate truckers and bus drivers—the percentage is 80% for food and beverage expenses related to a period of duty, subject to the hours-of-service limits of the U.S. Department of Transportation.

Example: A company reimburses its marketing manager for attending a June trade show in Chicago based on the $309 high-cost per diem. It may deduct $272 ($235 for lodging plus $37 for half of the meals and incidental expense allowance).

For More Information

Don't let expense reimbursements for business travel become a source of frustration for you or your employees. Contact your SSB tax advisor for ideas to simplify the reimbursement process that will pass IRS scrutiny, while eliminating administrative red tape.

 

State

Key City
(Effective Dates*)

Alabama

Gulf Shores (June 1—July 31)

Arizona

Phoenix/Scottsdale (February 1—March 31)

 

Sedona

California

Mill Valley/San Rafael/Novato (October 1-October 31; June 1-September 30)

 

Monterey (June 1—August 31)

 

Napa

 

Oakland

 

San Diego

 

San Francisco

 

San Luis Obispo (June 1—August 31)

 

San Mateo/Foster City/Belmont

 

Santa Barbara

 

Santa Monica

 

Sunnyvale/Palo Alto/San Jose

 

Yosemite National Park

Colorado

Aspen (October 1—March 31; June 1—September 30)

 

Denver/Aurora (October 1—October 31; April 1—September 30)

 

Grand Lake (December 1—March 31)

 

Silverthorne/Breckenridge (October 1—March 31; June 1—September 30)

 

Steamboat Springs (December 1—March 31)

 

Telluride

 

Vail

Delaware

Lewes (July 1—August 31)

District of Columbia

Washington, D.C. (October 1—June 30; September 1—September 30)

Florida

Boca Raton/Delray Beach/Jupiter (December 1—April 30)

 

Bradenton (February 1—March 31)

 

Cocoa Beach (February 1—March 31)

 

Fort Lauderdale (January 1—April 30)

 

Fort Myers (December 1—March 31)

 

Fort Walton Beach/DeFuniak Springs (June 1—July 31)

 

Gulf Breeze (June 1—July 31)

 

Key West (October 1—September 30)

 

Miami (December 1—May 31)

 

Naples (December 1—April 30)

 

Panama City (June 1—July 31)

 

Pensacola (June 1—July 31)

 

Punta Gorda (February 1—March 31)

 

Sarasota (February 1—April 30)

 

Sebring (February 1—March 31)

 

Stuart (February 1—March 31)

 

Tampa/St. Petersburg (January 1—April 30)

 

Vero Beach

Georgia

Atlanta (January 1—March 31)

 

Jekyll Island/Brunswick (March 1—July 31)

Idaho

Sun Valley/Ketchum (December 1—March 31; June 1—September 30)

Illinois

Chicago (October 1—November 30; April 1—September 30)

Maine

Bar Harbor/Rockport (October 1—October 31; July 1—September 30)

 

Kennebunk/Kittery/Sanford (July 1—August 31)

 

Portland (October 1—October 31; July 1—September 30)

Maryland

Ocean City (July 1—August 31)

Massachusetts

Boston/Cambridge

 

Falmouth (May 1—August 31)

 

Hyannis (July 1—August 31)

 

Martha's Vineyard

 

Nantucket

Michigan

Mackinac Island (July 1—August 31)

 

Petoskey (July 1—August 31)

 

Traverse City (July 1—August 31)

Minnesota

Duluth (October 1—October 31; June 1—September 30)

Montana

Big Sky/West Yellowstone/Gardiner (June 1—September 30)

 

Kalispell/Whitefish (July 1—August 31)

 

Missoula (June 1—September 30)

New Jersey

Toms River (July 1—August 31)

New Mexico

Carlsbad

New York

Glens Falls (July 1—August 31)

 

Lake Placid (July 1—August 31)

 

New York City (October 1—December 31; March 1—September 30)

 

Saratoga Springs/Schenectady (July 1—August 31)

North Carolina

Kill Devil Hills (April 1—September 30)

Oregon

Eugene/Florence (June 1—July 31)

 

Lincoln City (July 1—August 31)

 

Seaside (July 1—August 31)

Pennsylvania

Hershey (June 1—August 31)

 

Philadelphia (October 1—November 30; March 1—June 30; September 1—September 30)

Rhode Island

Jamestown/Middletown/Newport (October 1—October 31; June 1—September 30)

South Carolina

Charleston

 

Hilton Head (March 1—August 31)

 

Myrtle Beach (June 1—August 31)

Tennessee

Nashville

Utah

Moab (October 1—October 31; March 1—September 30)

 

Park City

Vermont

Manchester (October 1—October 31; August 1—September 30)

 

Montpelier (October 1—October 31; August 1—September 30)

Virginia

Virginia Beach (June 1—August 31)

 

Wallops Island (July 1—August 31)

Washington

Port Angeles/Port Townsend (July 1—August 31)

 

Seattle (October 1—October 31; May 1—September 30)

Wyoming

Cody (June 1—September 30)

 

Jackson/Pinedale

* If no effective date is listed, the location is a high-cost area all year long.

- Source: IRS

©  2023