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Per Diem Rates — IRS Announces High-Low Rates

Instead of reimbursing employees for actual expenses incurred while traveling for business, employers can use a per diem allowance.

November 17, 2008
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Rev. Proc. 2008-59

Instead of reimbursing employees for actual expenses incurred while traveling for business, employers can use a per diem allowance. Then, they can deduct payments for lodging and meals and incidental expenses (M&IE) up to the IRS-approved rate, regardless of the actual amounts spent by the employees. The high-low method provides two sets of per diem allowances based on the destination of the business travel — one for designated high-cost localities and another for all other localities.

Effective October 1 of each year, the IRS announces the list of high-cost localities and allowances for the next 12 months. For each calendar year, employers can use (1) the rates and high-cost locations in effect as of January 1 for the entire year or (2) the actual rates and locations in effect for the month the travel took place. Employers choosing the second option must update their per diem rates starting October 1 of each year.

Rev. Proc. 2008-59 lists the high-cost locations and the per diem rates under the high-low method effective October 1, 2008 to
September 30, 2009.

High-Low Per Diem Rates
Effective 10/1/07 to 9/30/08*
Locality Lodging Per Diem Rate M&IE Per Diem Rate Total
High-cost $179 $58 $237
All others $107 $45 $152
Effective 10/1/08 to 9/30/09*
High-cost $198 $58 $256
All others $113 $45 $128
* These rates (and the list of high-cost localities in Rev. Proc. 2007-63) can be used for all of 2008.
** See Rev. Proc. 2008-59 for the list of high-cost locations effective 10/1/08.

Caution: The high-low method can only be used by employers to figure a per diem allowance for their employees. Self-employed taxpayers and employees cannot use it to compute a deduction for business expenses. However, these taxpayers may use the per diem method based on the federal reimbursement rate for specific locations to compute deductions for M&IE (but not lodging) while traveling on business. See www.gsa.gov for the list of per diem rates by location, which, like the high-low rates have been updated effective October 1, 2008.

From the Quickfinder Tax Tips newsletter from the Tax & Accounting business of Thomson Reuters, November 2008. To subscribe to this informative monthly newsletter, visit quickfinder.thomson.com or click here.