Skip to content 
As a business owner, managing travel expenses for yourself and your employees can be a tedious task. Fortunately, the IRS offers a streamlined way to handle this through the per diem rates. These rates are an alternative to tracking every single travel-related expense, helping you simplify your accounting while still adhering to tax compliance. The IRS recently updated the per diem rates for 2024, which took effect on October 1, 2023. Here’s a breakdown of what these changes mean for your business and how you can take full advantage of them.
What Are Per Diem Rates?
Per diem rates are daily allowances the IRS sets to cover lodging, meals, and incidental expenses for employees traveling on business. Instead of submitting receipts for every expense incurred during a trip, employees can be reimbursed using these set rates. This not only saves time but also reduces the complexity of tracking small costs like tips, taxis, and meals.
The two main components of per diem rates include:
- Lodging: The maximum allowable amount for lodging in a given area.
- Meals and Incidental Expenses (M&IE): This covers meals, tips, laundry, and other minor expenses.
Key Changes in the 2024 IRS Per Diem Rates
Starting October 1, 2023, the IRS introduced updated per diem rates for business travel. The most significant change involves an adjustment to the “high-cost areas” — cities or regions where higher rates apply due to the elevated cost of living or business travel demands. For travel to high-cost areas, the per diem rate for lodging can be as high as $333, with an additional $79 for meals and incidental expenses.
For other locations, known as “low-cost areas,” the per diem rate is $204 for lodging and $64 for meals and incidental expenses. As a business owner, it’s essential to be aware of these updated rates to ensure your reimbursements align with IRS guidelines and avoid unnecessary complications.
High-Cost and Low-Cost Areas
The IRS maintains a list of high-cost areas where the higher per diem rates apply. These locations are typically major metropolitan cities, popular tourist destinations, or regions experiencing economic growth. Notable high-cost areas for 2024 include places like San Francisco, New York City, and Washington, D.C.
Low-cost areas, by contrast, are generally smaller cities or rural locations where travel costs are lower. By using the IRS’s breakdown of high-cost and low-cost areas, you can accurately apply the appropriate per diem rates for your employees’ travel expenses.
Benefits of Using Per Diem Rates
For business owners, the benefits of using per diem rates extend beyond mere convenience. Here are a few reasons why adopting per diem rates can be a smart move for your business:
- Simplified Record-Keeping: Instead of collecting and storing receipts for every meal and incidental expense, employees can simply report their travel days and apply the applicable per diem rate. This reduces the administrative burden on both your employees and your accounting department.
- Compliance Assurance: The IRS sets per diem rates as a standardized method for reimbursing travel expenses. By adhering to these rates, you reduce the likelihood of triggering an audit due to unsubstantiated deductions.
- Tax Efficiency: Per diem reimbursements are tax-deductible for businesses and tax-free for employees when handled correctly. This means that not only are you providing fair compensation to your employees, but you are also ensuring that your business receives its due tax deductions without additional payroll tax complications.
- Cost Control: By implementing per diem rates, you can control travel expenses more predictably, particularly in high-cost areas. This ensures that employee reimbursements are reasonable and don’t exceed what the IRS considers acceptable.
How to Apply Per Diem Rates
To use the IRS per diem rates, you don’t need to submit receipts for lodging, meals, or incidental expenses as long as the reimbursement matches the published rates. However, it’s crucial that your business follows these basic guidelines:
- Documentation: Employees must still provide documentation that shows the dates, location, and business purpose of their travel. This helps substantiate the travel expenses, even though detailed receipts are not required for the per diem components.
- Partial Day Adjustments: On travel days that are less than 24 hours, the M&IE allowance is typically prorated to 75%. Be sure to account for this when processing reimbursements.
- Meals-Only Per Diem: If your business provides lodging directly to the employee, you can still use the per diem rates for meals and incidental expenses without needing to calculate lodging costs.
When to Avoid Per Diem Rates
While the per diem system offers many advantages, there are situations where it might not be the best fit for your business:
- Long-Term Travel: For long-term assignments, actual expenses may be more cost-effective, especially in locations where the cost of living is significantly lower than the per diem rate.
- High-End Travel Needs: If your business frequently books luxury accommodations or provides higher-end meals, the per diem rate may not cover the actual costs. In such cases, it might make more sense to track actual expenses rather than rely on the standard rates.
Conclusion
The updated per diem rates for 2024 provide a simplified, tax-efficient method for reimbursing employees who travel for business. By using these rates, your business can streamline expense reporting, maintain compliance with IRS regulations, and manage travel costs more effectively. Be sure to review the high-cost and low-cost areas regularly to apply the correct rates and maximize your tax deductions. As always, careful documentation and adherence to IRS guidelines are key to ensuring smooth, audit-proof reimbursement practices.
