The IRS permits the use of per diem rates (which means "for each day" or "daily rate" in Latin) to facilitate reimbursement for employers and employees. Per-diem rates are a fixed amount paid to employees to compensate for accommodation, meals, and additional expenses incurred during the business trip, instead of using actual expenses.
This is how per-diem rates normally work.
The employer can use a per diem rate to reimburse employees for the combined costs of room and board or just the cost of meals. Per Diem payments are not part of an employee's salary for tax purposes, provided the payments are at or below the federal daily rate, and the employee provides an expense report. If the employee does not provide a complete statement of his expenses, the payments will be imposed on the employee. Likewise, payments over the daily rate will also be taxed.
Reimbursed & Unreimbursed Expenses
Please note that currently, unreimbursed business expenses are not tax-deductible. The TCJA eliminated unreimbursed labor costs and several itemized deductions, subject to the minimum limit of 2% for fiscal years 2018-2025. These costs include unreimbursed travel and mileage.
It also means that the standard turnover rate cannot deduct unpaid employee travel expenses for fiscal years 2018-2025. However, the IRS has clarified that members of a U.S. reserved component of the military, state, or local government officials paid on a fees basis and certain artists may continue to deduct unreimbursed travel expenses as an adjustment to income; in other words, these people can continue to use the standard business mileage rate.
Independent Taxpayers
What about independent taxpayers? The TCJA has not changed the deductions for independent taxpayers. Independent taxpayers can continue to deduct expenses related to business activities. However, per-diem rates are not that helpful for self-employed, as they can only use per-diem rates for meal expenses. In effect, this means that independent taxpayers must continue to keep excellent records and use accurate numbers.
The new numbers
As of October 1, 2020, the per-diem rates for special meals and incidental expenses (M&IE) for taxpayers who are in the transportation industry are $66 for any travel location within the continental United States and $71 for any travel outside of the continental United States; these rates are the same as last year. Daily meals and incidentals include all meals, room service, laundry, dry cleaning, ironing, taxes, and tips for service providers such as waiters and porters.
The rate is only $ 5 per day regardless of the location. Unexpected expenses include taxes and tips paid on-site, including porters and hotel staff. Transportation between where you work or sleep and where you eat, and the cost of presenting travel vouchers and paying employer's credit card bills, are no longer included in the additional fees. If you want to take a break and use the per-diem rates, you can request a refund from your employer.
If you have already deducted these unreimbursed business expenses and can no longer do so with TCJA, ask your employer for possible reimbursement.
Of course, as the trip's cost can vary depending on where and when you travel, there are special rates for certain destinations. For the high justification method, the per diem rates are $292 for travel to any high-cost location and $198 for travel to any other location in the continental United States. Meals and extra daily expenses to get to these destinations still cost $71 to get to an expensive location and $60 to get to any other location in the continental United States.
You can find the list of high-cost locations for all or part of the calendar year, including applicable rates, in the latest IRS notification. However, there are a few notable changes, including:
The following locations have been added to the list of high-cost locations: Los Angeles, California; Gulf Breeze, Florida; Kennebunk / Kittery / Sanford, San Diego, California; Maine; and Virginia Beach, Virginia.
The following locations have been removed from the list of high-cost locations: Midland / Odessa, Texas, and Pecos, Texas.
The following locations have changed the part of the year that they are high-cost locations (which means seasonal rates apply): Sedona, Arizona; Massachusetts; Philadelphia, Monterey, California; District of Columbia (see also Maryland and Virginia; Santa Barbara, California; Naples, Rhode Island; Florida; Jekyll Island / Brunswick, Georgia; Boston / Cambridge, Pennsylvania; Jamestown / Middletown / Newport, and Charleston, South Carolina.
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