The Per diem allowance is paid by the employer to its employees for lodging, meals, and incidental expenses incurred when travelling. IRS allows Per diem reimbursements while computing business income if the reimbursement for lodging (excluding taxes), meals and incidental expenses to an employee or even to businessman himself is as per IRS per diem rate. .
What is 2020 Per diem rates?
The per-diem amount for meals and lodging depends on the location to which one is travelling. There are almost 400 destinations across the United States for which a special per-diem rate has been specified. For travel to any other areas within the United States, general per diem rates which is $96 for lodging and $55 per meal.You can search for per diem rates determined by The General Services Administration (GSA) . You can check the rates on GSA website here.
What is standard IRS per diem rates for 2019-20
For 2019, the default rate in the continental US is $94 for lodging and $51 for M&IE. The rate for just meal and incidental expenses (M&IE) is $60. In addition, the IRS publishes special rates for over 400 high cost locations .
Search GSA per diem rates
Is per diem rates paid to employees taxable?
Any amount paid in excess of the per diem rates is taxable in the hand of employee. The payments equal to the maximum federal per diem rate or less than that is non-taxable.But, IRS rules ask you to keep good records and use expense reports . Read IRS faq on per diem allowance
The rate of per diem varies and is dependent on location. For example, larger cities will typically set a maximum per diem rate of $76 for meals and incidentals. Smaller cities usually fall within the range of $56 to $71, and places that see business travel even less frequently have a minimum tier rate of $55.
The per diem rate for lodging is separate from meals and incidentals and can vary greatly depending on the area. Big cities like Atlanta or Chicago will have higher reimbursement rates, while more remote areas will offer less for lodging reimbursement.
How location affect Per Diem ?
The rates for per diem are dependent on the cost of living in a particular area. This means larger cities like New York or Los Angeles will have higher reimbursement rates. Small towns and cities will have a lower rate on account of lower cost of goods and services .Similarly ,per diem rates for lodging are also vary depending on the supply and demand hotel rooms . So , in different months, per diem rates for lodging are different,
What are IRS Per Diem Guidelines?
IRS does not consider per diem payments to employees as wages, and therefore per diem reimbursements are not taxable in hand of employees , provided following conditions are fulfilled :
- The payment is equal to or less than allowable federal rate.
- Employees must submit an accurate expense report, per diem payments will also be subject to tax.Essential items like the date, time, place, amount, and business purpose of all expenses must be shown on a daily expense report.If the expense report is not submitted, those per diem payments will be considered as wages and will also be subject to the income tax withholding.
- Employer must report per diem to the IRS, it will be included in the standard W-2 form. For instances where the per diem rate is over the allowable federal rate, only the excess amount will be taxed as wages.
- For every expense and per diem report submitted, a log of information must be included to support all travel and related expenses. This log should consist of the number of days traveled for business, where the employee went, and the exact business purpose for each trip.
- In case employee has to travel to extended amount of time that lasts longer than one year in a single location ,the employee may not be eligible for tax exemption under the current IRS per diem rules.
- If an employee uses their own personal vehicle for business travel, they will be reimbursed via the current IRS mileage rate reimbursement.
Can Self Employed Person Claim Per diem?
Self employed or freelancers can use per diems to deduct meals and incidental expenses from their taxes while on travel, but not for lodging expense. For lodging, the actual expense has to be claimed based on receipt/payment proof of actual expense on lodging.