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IRS changing per diem travel limits
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.

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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 sector
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 location then.

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

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See Also
Business owners should stop to figure travel expenses (9/23/99)
Travel for charity is deductible, too

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