New Per Diem Rates for 2014-2015

October 1, 2014 - Posted by: Kruggel Lawton CPAs

The IRS recently updated the per diem rates for business travel for fiscal year 2015, which started on October 1, 2014 - see IRS Notice 2014-57. Under the high-low method, the per diem rate for all high-cost areas within the continental United States is $259 for post-September 30, 2014 travel (consisting of $194 for lodging and $65 for meals and incidental expenses). For all other areas within the continental United States, the per diem rate is $172 for post-September 30, 2014 travel (consisting of $120 for lodging and $52 for meals and incidental expenses). Compared to the prior simplified per diems, the high-cost area per diem has increased $8, and the low-cost area per diem has increased $2.

Another important change relates to incidental expenses. The following costs are no longer included in incidental expenses:

Transportation costs between places of lodging or business and places where meals are taken; and
Mailing costs of filing travel vouchers and paying employer-sponsored charge card billings.

Accordingly, taxpayers using per diem rates may separately deduct, or be reimbursed for, transportation and mailing expenses.

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

San Mateo/Foster City/Belmont, California
Sunnyvale/Palo Alto/San Jose, California
Glendive/Sidney, Montana
Williston, North Dakota

These areas have been removed from the previous list of high-cost localities:

Yosemite National Park, California
San Diego, California
Floral Park/Garden City/Great Neck, New York

Note: Certain tourist-attraction areas only count as high-cost areas on a seasonal basis. Starting on October 1, the following tourist-attraction areas have changed the portion of the year in which they are high-cost localities:

Sedona, Arizona
Napa, California
Vail, Colorado
Fort Lauderdale, Florida
Miami, Florida
Philadelphia, Pennsylvania

Rules and Restrictions

Companies that use the high-low method for an employee must continue to use it for all reimbursement of business travel expenses within the continental United States during the calendar year. The company may use any permissible method to reimburse that employee for any travel outside the continental United States, however.

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

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

Company Deductions

In terms of deducting amounts reimbursed to employees on the company's tax return, employers must treat meals and incidental expenses as a food and beverage expense that's subject to the 50 percent deduction limit on meal expenses. For certain types of employees -- such as air transport workers, interstate truckers and bus drivers -- the percentage is 80 percent 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 July trade show in Chicago based on the $259 high-cost per diem. It may deduct $226.50 ($194 for lodging plus $32.50 for half of the meals and incidental expense allowance).

Contact a Tax Pro

IRS auditors often target business travel expenses so detailed recordkeeping is imperative. Per diem substantiation methods may simplify your recordkeeping requirements and minimize IRS scrutiny. Contact our tax pros to determine if it makes sense for your company to use per diem rates to reimburse employees' business travel expenses.

Dan Smogor, CPA, CGMA
Partner
574.289.4011