New Per Diem Rates For Employee Travel Reimbursement

By Edwin B. Morris

Instead of reimbursing actual expenses for away-from-home lodging, meals, and incidentals, an employer may pay a per diem amount to an employee on business travel status. If the amount paid does not exceed IRS-approved rates, and if the employee provides simplified substantiation (time, place, and business purpose), the per diem reimbursement is treated as made under an accountable plan (not subject to income or payroll tax withholding and reporting). The per diem rate varies from locality to locality, so employers may use a published high-low per diem, which specifies one uniform per diem rate for all high-cost areas within the continental United States and another rate for all other areas.

Effective October 1, 2001, through September 30, 2002, the IRS has announced in Revenue Procedure 2001-47 the following high-low rates:

	Lodging	Meals and Incidentals	Total
High cost	$162	$42	$204
All other	$91	$34	$125

The lodging portion of the high-cost per diem is $3 higher than it was for the year ended September 30, 2001, and the lodging portion of the non–high-cost per diem is $1 higher. The meal and incidental rates are unchanged.

An employer can continue using the prior high-low rates from October 1, 2001, through December 31, 2001, provided it does so consistently for all employees reimbursed under the high-low method.

Meal and incidental allowances are subject to the 50% deduction limit on meal expenses. Therefore, a high-cost area per diem deduction is equal to $183 [$162 lodging plus $21 (half of $42)] and a low-cost area deduction is equal to $108 [$91 for lodging plus $17 (half of $34)].

Revenue Procedure 2001-47 also lists the high-cost localities, which are updated annually.

A taxpayer will not be treated as being temporarily away from home during any period of employment if such period is expected to exceed one year. In such situations, per diems paid for travel expense (including meals and lodging) constitute taxable wages to the employee. The following examples derived from IRS Revenue Ruling 93-86 illustrate the one-year rule:

• A taxpayer expects to be, and is, employed out of town for less than one year. Result: Expenses are deductible and per diems are excludable.
• A taxpayer expects to be, and is, employed out of town for more than one year. Result: Expenses are not deductible and per diems are taxable wages.
• A taxpayer expects to be employed out of town for less than one year, but the stay is extended to over one year due to a change in circumstances. Result: The individual may deduct travel expenses paid or incurred during the portion of the stay prior to the change in circumstances (any per diems received during this portion would be tax-free). From the change in circumstances forward, expenses are nondeductible and per diems are taxable wages.

---

Edwin B. Morris, CPA, is a partner at Rosenberg Neuwirth & Kuchner and a member of the NYSSCPA Closely Held and S Corporations Committee.

---

Editors:

Edwin B. Morris, CPA
Rosenberg Neuwirth & Kuchner

Stephen Sacks, CPA
Ernst & Young LLP

---

This Month | About Us | Archives | Advertise| NYSSCPA

The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.

©2002 CPA Journal. Legal Notices