Posted by Elliot Kravitz, ATP

Love to Travel? Learn about the New Per Diem Rates

Love to Travel? Learn about the New Per Diem Rates

Effective on October 1, 2019, the new per diem numbers are out. On or after October 1, 2019, any employees who will travel away from home will have this allowance and these numbers to be used. The rate for the incidental expenses; the transportation industry; and for the purpose of the high-low substantiation method, the rates, and list of high-cost localities are some of the factors included in the new rates. 

It is actually intended to be simply though it sounds very complicated. To make reimbursements easier for employers and employees, The IRS allows the use of per diem (Latin meaning "for each day"). Expenses incurred when traveling on business such as meals, lodging, and incidental expenses are reimbursed by the per diem rate and these are fixed amount paid rather than using actual expenses. 

So how does it work? 

Employees are reimbursed for combined lodging and meal costs, or meal costs alone by their employer using the per diem rate. So long as the employee provides an expense report, and the payments are equal to or less than the per diem rate, per diem payments, are not considered part of the employee's wages for tax purposes. The payments will be taxable to the employee if the employee doesn't provide a complete expense report. And, the per diem rate will also be taxable if the payment is more than the per diem. 

Unreimbursed job expenses for the 2019 tax year are not deductible so always consider reimbursement piece as essential. Subject to the two percent floor for the tax years 2018 through 2025 of unreimbursed job expenses and miscellaneous are being eliminated by the Tax Cuts and Jobs Act. Unreimbursed travel and mileage are some of the expenses included. 

This simply means also that to deduct unreimbursed employee travel expenses for 2018 through 2025 tax years, the business mileage rate cannot be used. But the IRS made some exception because there are some folk who can continue to use the business standard mileage rate. They can deduct unreimbursed employee travel expenses on the front page of the 1040 which is an adjustment to income. They are the member of the reserve component of the Armed Forces of the United States, government officials in state or local paid on a fee basis, and various performing artists.  You can check out Notice 2018-42 for further details. 

The good news for self-employed individuals is they can still deduct business-related expenses. However, they can only use the per diem rates for meal costs so it isn't so useful for self-employed taxpayers. Realistically, keeping excellent records and use exact numbers are what self-employed taxpayers must do. 

The per diem rates for taxpayers of the special meals and incidental expenses (M&IE) are slightly higher than last year. As of October 1, 2019, per diem rates for taxpayers in the transportation industry is $71 for any locality of travel outside the continental United States. For any locality of travel in the continental United States on the other hand, it’s $66. All meals, room service, dry cleaning, laundry, a press of clothing, and fees and tips for persons who provided the service (food servers, luggage handlers, etc.) are some of the things included in the per diem for meals and incidental expenses (M&IE). 

The rate for incidental expenses only is $5 per day regardless of the location. Incidental expenses also include fees and tips paid at lodging, porters and hotel staffs. The following are no longer included in incidental expenses: paying employer-sponsored charge card billings, transportation between where you sleep or work and where you eat, and as well as the mailing cost of filing travel vouchers. You may request that your employer reimburse you if you want to snag a break for those and you use the per diem rates. 

You as an employee can ask your employer about potential reimbursements if you previously deducted those unreimbursed job expenses and can no longer do so under the TCJA. Companies would likely not want to lose a good employee over a few dollars. This happens when those dollars are important to the employee even if they might not have considered the need for policies that are reimbursement specific prior to the newly implemented tax law. There are special rates for certain destinations even if the cost of travel varies depending on where and when you are going. The per diem rates are $200 for travel to any other locality within the continental United States and $297 for travel to any high-cost locality -- that's for the purpose of the high-low substantiation method. To those destinations, the meals & incidental expenses per diem is $60 for travel to any other locality within the continental United States and $71 for travel to a high-cost locality. 

In Notice 2019-55, you can find the entire high-cost localities list together with other per diem information. You can head over to the General Services Administration (GSA) website if you want to find the federal government per diem rates by locality name or zip code. 

Elliot Kravitz, ATP
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