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IRS Allows High-Low Per Diem Method as Substantiation of Travel and Meal Expenses

Employees who travel for business are often reimbursed by their employer for ordinary and necessary business expenses such as lodging, meals and incidental expenses. If paid as part of an "accountable plan," as defined by Section 62(a)(2)(A), said reimbursements do not have to be recognized by the employee as income. Part of the requirements for an accountable plan include "substantiation" of ordinary and necessary business expenses incurred during travel. In order for these expenditures to be considered "substantiated," the employee must follow the guidelines set forth by the IRS. Revenue Procedure 2008-59 updates the allowable methods for meeting the substantiation requirements.

One method of substantiation allowed by the IRS is the "high-low per diem method." Using this method, employers can reimburse employees based on a preset per diem amount that is either high or low depending on where the employee is traveling within the continental United States. Revenue Procedure 2008-59 increases the high per diem to $256 ($198 for lodging and $58 for meal and incidental expenses [M&IE] and the low per diem to $158 ($113 for lodging and $45 for M&IE). These changes are effective for expenses incurred after September 30, 2008, and the employer must have been using the high-low per diem method for all of calendar year 2008 in order to take advantage of the new rates.

The per diem method can also be used by employers who chose to reimburse travel expenses on an actual basis to reimburse only meals and incidentals as long as they use a rate not exceeding the federal per diem rate. Furthermore, a rate of $3 per day can be deducted for employees/employers who chose to pay a per diem for incidentals only. These methods can also be used by self-employed individuals or employees who are not reimbursed for expenses to calculate a reasonable deduction for ordinary and necessary business expenses incurred while traveling.

For more information, please contact Amanda McQuin at 312-980-2991 or your Blackman Kallick representative.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.