IRS changing per diem travel
that many companies use
If you think your company's travel reimbursement
policy is a bit stingy, you might be able to put some of the blame
on Uncle Sam.
Instead of paying for an employee's actual business
travel expenses, some companies choose a per diem reimbursement
system. Under this "per day" method, employees are reimbursed
through pre-set travel allowances for lodging, meals and other expenses
without having to provide detailed recordkeeping or receipts to
satisfy the Internal Revenue Service.
But it's not just tight-fisted bosses limiting
expense checks. The per diem amounts acceptable to the IRS are established
annually on a city-by-city basis by several government agencies.
Now the federal rates for domestic travel are
being revised early, on Oct. 1 instead of next January. That means
some private-sector workers could get a bit of an expense break
for the last quarter of the year.
How the amounts are figured
To keep a lid on federal employee travel costs, the General Services
Administration (GSA) annually sets per diem rates for civil service
business travelers. Government workers are reimbursed for the actual
daily cost of lodging up to a set limit, plus a fixed amount for
meals and incidental expenses.
When the per diem system is used in the private
sector, all employees have to provide is a record of where they
traveled, when and for what purpose. They do not have to substantiate
the actual amount spent.
The GSA hires an independent vendor to survey
hotel rates and meal costs at locations in the continental United
States, known as CONUS in fed-speak, that are frequently visited
by government employees on official business. That data is used
to determine the daily expense allowance for each city. Travel per
diem rates for locations in Alaska, Hawaii and U.S. territories
and possessions are set by the Department of Defense. The State
Department handles rates for international travel.
On Oct. 1, the GSA will start using new
rates for the lower 48 to coincide with the 2001 federal fiscal
year. Many of the rates will be the same, but 27 percent will be
lower and 30 percent higher than they were earlier in 2000. They
range from a low of $85 for lodging and meals in cities the size
of Topeka, Kan., to $244 in Manhattan, N.Y.
A rate choice for the private
To ease the transition for the private sector, the IRS will let
business travelers choose whether to use the figures that have been
in place since January or the new October-effective allowances.
This option applies not only to businesses and employees, but also
self-employed people who use the per diem method to deduct their
business travel costs.
But, the IRS cautions, taxpayers cannot mix
the two rates during the last three months of the year. That is,
you can't use the old rate in October because it's more favorable
for a particular trip, then switch in December to the new per diem
schedule because that amount is more preferable for a business travel
Companies, especially those on calendar accounting
years, also will have to decide whether any benefit that might be
gained from the new rates is worth the administrative costs of switching
over the expense account method early. It might, some tax advisers
say, be more convenient to continue using the old rates through
the end of 2000, giving company accountants more time to integrate
the new reimbursement rates into their expense reimbursement system.
-- Posted Sept. 11, 2000