The IRS recently announced an increase in federal per diem rates for business travel inside and outside the continental United States. This information is important for organizations that use per diem rates, as opposed to actual reimbursements, to substantiate business expenses.
According to Rev Proc. 2009-47, beginning October 1, 2009, the current federal rate for when an employer is only paying for meals and incidental expenses is now $59 per day for anywhere in the continental United States (CONUS). For travel outside the continental U.S., the federal meal and incidental expense rate is $65 per day.
For organizations that use the high-low per diem method, the revenue procedure increases the “high-cost locality” rate to $258 per day. The rate for all other cities is $163 per day. Unlike the CONUS rates, the high-low per diem rates include lodging in addition to meals and incidental expenses.
Several cities were added to the list of high-cost localities, including Monterey, Calif.; Denver/Aurora, Colo.; Bar Harbor, Maine; Conway, N.H.; Glens Falls, N.Y.; Lake Placid, N.Y.; and Hershey, Pa. The following cities were removed from the list: Crested Butte/Gunnison, Colo.; Silverthorne/Breckenridge, Colo.; and Palm Beach, Fla. A full list of all high-cost localities can be found in the revenue procedure.
The IRS requires organizations to be consistent with which per diem method they employ. For example, if an employer provides an employee with the general CONUS rate on one trip, they cannot use the high-low method with the same employee on another trip during the same calendar year. Also, if you substantiate an employee’s expenses based on a city’s actual General Services Administration per-diem rate, then you cannot use either of the methods described above for that employee.
Employers are free to determine whether they will use the new per diem rates between October 1, 2009 and January 1, 2010. They can either continue using the 2009 rates for the rest of the year or immediately adopt the 2010 rates. However, they cannot use 2009 rates for one employee and 2010 for another. Beginning January 1, 2010, only the new rates can be used.
Organizations that reimburse employees for actual documented expenses according to an accountable plan can disregard the revenue procedure as it makes no changes to that process.
