Two years ago, the IRS provided general rules for using a federal per diem rate to substantiate the amount of ordinary and necessary expenses for lodging, meals, and incidental costs paid or incurred for business-related travel. In September 2013, the Internal Revenue Service (IRS) issued a new notice on the special per-diem rates to be used in determining the rate employers pay their employees for business travel purposes after October 1, 2013 through December 31, 2014.
AG Tax has highlighted the major updates covered by IRS Notice 2013-65 below, as well as provided background on the different types of per-diem methods available.
Special Meals and Incidental Expense (M&IE) Rates for Transportation Industry
Background
This is a deduction allowed by the IRS for employees in the transportation industry. For example, an airline company allows a fixed amount, often called “per diem,” to cover meals and incidental expenses that a pilot may incur while on a trip.
Per-Diem Rates Update
The special M&IE rates for taxpayers in the transportation industry remains the same as it was in 2012, which is:
• $59 for any locality of travel within the Contiguous U.S. (CONUS) and
• $65 for any locality of travel outside the Contiguous U.S. (OCONUS).
Incidental Expenses Only Deduction
Background
“Incidental expenses” include fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. Please note that the following expenses are no longer considered incidental expenses:
1. Transportation between places of lodging or business and places where meals are taken
2. Mailing cost of filing travel vouchers and paying employer-sponsored charge card billings
Per-Diem Rates Update
The rates for incidental expenses only deduction also remains unchanged at $5 per day for any of the new incidental expenses at any locality of travel, CONUS or OCONUS.
High-low Substantiation Method
Background
The high-low substantiation method is a simplified method to figure an employee’s lodging, meals, and incidental expenses during a business trip. It requires employers to use one of two per-diem rates to reimburse employee travel expenses (one for high-cost locations and one for low-cost locations). There are a significant number of localities categorized by the IRS as high cost and low cost areas.
Per-Diem Rates Update
The updated per-diem rates are:
• $251, comprising of: $186 for lodging and $65 for M&IE, for the high-cost-area, and
• $170, comprising of $118 for lodging and $52 for M&IE, for all other localities within CONUS.
These rates are to be used for all expenses incurred on a travel away from home, within or outside the U.S. for the remainder of 2013 and 2014. Please note that several locations have been added to the high-cost localities.
AG Tax LLP Can Help
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of U.S. and Canadian tax laws as well as cross-border compliance.
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We can assist with:
- Canadian Personal and corporate tax returns
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