The IRS recently updated its list of simplified per-diem rates that employers may use in making per diem allowances to employees for lodging, meal and incidental expenses (M&IE) paid or incurred for business travel while away from home. The list is effective from October 1, 2007 through September 30, 2008.

In lieu of actual per-diems, employers may use the IRS’s simplified “high-low” per-diem, which provides a uniform per-diem rate for all high-cost and other areas within the continental United States. If the per-diem rate paid by an employer to an employee for away-from-home lodging, meal and incidental expenses does not exceed IRS-approved maximum per-diem rates, and the employee meets simplified substantiation requirements (i.e. reporting time, place and business purpose), than reimbursement is deemed to be made under an accountable plan and thus not subject to income or payroll tax withholding, or reported on an employee’s Form W-2.

IRS simplified rates

The simplified “high-low” per-diem rates have decreased to $237 for high-cost localities and increased to $152 for low-cost localities. For purposes of applying the high-low substantiation methods and the 50-percent limitation on meal expenses, the federal M&IE rate is treated as $58 for a high-cost locality and $45 for any other locality within the continental United States (CONUS). An employer using the IRS’s simplified “high-low” per-diem rate for an employee for the first nine months of 2007 must:

(1) Continue to use that method for the employee for the remainder of 2007; and
(2) Use the high-low rates set forth in Rev. Proc. 2006-41 (accessible on the irs.gov website) for the remainder of 2007, instead of using the new high-low rates.

Nonetheless, an employer may still reimburse an employee for their actual expenses, use the meal and incidental expense-only per-diem method or use the GSA-per diem rate for travel outside the continental United States.

Note. Taxpayers who used the federal M&IE rates for the first nine months of calendar year 2007 may not use the transportation industry rates until January 1, 2008. Conversely, taxpayers who used the transportation industry rates for the first nine months of calendar year 2007 may not use the federal M&IE rates until January 1, 2008.

General Service Administration rates

Employers may continue to use the General Service Administration’s (GSA) maximum per-diem rates for locations within the continental United States for the first nine months of calendar year 2007. Effective for fiscal year (FY) 2008, the standard CONUS per diem rate rose from $109 for locations not specifically listed. The standard CONUS rate for listed areas ranges from $109 to $381. Whether a taxpayer uses the per-diem rates established by the GSA or the IRS, FY 2008 rates may be used starting October 1, 2007, or an employer may choose to continue using the “old” FY 2007 rates for the last three months of 2007 (October 1, 2007 to December 31, 2007). In effect, an employer cannot change methods until January 1, 2008.

If you would like more information or have any questions regarding per-diem rules please call our office.

(Rev. Proc. 2007-63)