IRS Provides Per Diem Rate Rules for Substantiating Expenses

IRS Provides Per Diem Rate Rules for Substantiating Expenses

Internal Revenue Service

The IRS has provided rules (Rev. Proc. 2019-48) for using a per diem rate to substantiate under <a href="/research/federal/usc26/274#cp3j-0000024" resolve="/lr/resolve//cp3j#cp3j-0000024">section 274(d)</a> the amount of ordinary and necessary business expenses paid or incurred while traveling away from home. Rev. Proc. 2019-48 modifies <a href="/lr/resolve//dnr7">Rev. Proc. 2011-47</a> to incorporate changes made by the Tax Cuts and Jobs Act, which amended <a href="/research/federal/usc26/67" resolve="/lr/resolve//cpqk">section 67</a> to suspend all miscellaneous itemized deductions for tax years beginning after December 31, 2017, and before January 1, 2026. The TCJA also amended <a href="/research/federal/usc26/274" resolve="/lr/resolve//cp3j">section 274</a> to generally disallow a deduction for expenses relating to entertainment, amusement, or recreation for amounts incurred or paid after December 31, 2017. Rev. Proc. 2019-48 provides rules for using a per diem rate to substantiate the amount of an employee’s expenses for lodging, meal, and incidental expenses, or for meal and incidental expenses only, that a payer (an employer, its agent, or a third party) reimburses. Specified employees and self-employed individuals that deduct unreimbursed expenses for travel away from home may use a per diem rate for meals and incidental expenses, or incidental expenses only, under Rev. Proc. 2019-48. The revenue procedure does not provide rules for using a per diem rate to substantiate the amount of lodging expenses only. Under the per diem substantiation method, if a payer pays a per diem allowance in lieu of reimbursing actual lodging, meal, and incidental expenses incurred or reasonably anticipated to be incurred by an employee for travel away from home, the amount of the expenses that is deemed substantiated for each calendar day is equal to the lesser of the per diem allowance for that day or the amount computed at the federal per diem rate for the locality of travel for that day (or partial day). A separate rule applies if a payer pays a per diem allowance only for meal and incidental expenses in lieu of reimbursing actual meal and incidental expenses incurred or to be incurred by an employee for travel away from home. Special rules and rates apply to the transportation industry. A payer that pays a per diem allowance in lieu of reimbursing actual expenses an employee pays or incurs or will pay or incur for travel away from home may use the high-low substantiation method rather than the per diem substantiation method or the meal and incidental expenses only method. Under the high-low substantiation method, a high rate applies to localities designated as high-cost localities and a low rate applies to every other locality within the continental United States. If a payer uses the high-low substantiation method, the amount of the expenses that is deemed substantiated for each calendar day is equal to the lesser of the actual per diem allowance for that day or the amount computed under section 5.02 of the revenue procedure. Employees and self-employed individuals may not use the high-low substantiation method in lieu of the meal and incidental expenses only deduction method. Taxpayers are not required to use a method described in the guidance and may substantiate actual allowable expenses if they maintain adequate records or other sufficient evidence. Rev. Proc. 2019-48 is effective for per diem allowances for lodging, meal and incidental expenses, or for meal and incidental expenses only that are paid to an employee on or after November 26, 2019, for travel away from home on or after November 26, 2019. For purposes of computing the amount allowable as a deduction for travel away from home, the revenue procedure is effective for meal and incidental expenses or for incidental expenses only paid or incurred on or after November 26, 2019.

Related IRS <a href="/lr/resolve//2b5g3">news release</a>.

The IRS has provided rules (Rev. Proc. 2019-48) for using a per diem rate to substantiate under section 274(d) the amount of ordinary and necessary business expenses paid or incurred while traveling away from home.

The IRS has provided rules (Rev. Proc. 2019-48) for using a per diem rate to substantiate under section 274(d) the amount of ordinary and necessary business expenses paid or incurred while traveling away from home. Rev. Proc. 2019-48 modifies Rev. Proc. 2011-47 to incorporate changes made by the Tax Cuts and Jobs Act, which amended section 67 to suspend all miscellaneous itemized deductions for tax years beginning after December 31, 2017, and before January 1, 2026. The TCJA also amended section 274 to generally disallow a deduction for expenses relating to entertainment, amusement, or recreation for amounts incurred or paid after December 31, 2017. Rev. Proc. 2019-48 provides rules for using a per diem rate to substantiate the amount of an employee’s expenses for lodging, meal, and incidental expenses, or for meal and incidental expenses only, that a payer (an employer, its agent, or a third party) reimburses. Specified employees and self-employed individuals that deduct unreimbursed expenses for travel away from home may use a per diem rate for meals and incidental expenses, or incidental expenses only, under Rev. Proc. 2019-48. The revenue procedure does not provide rules for using a per diem rate to substantiate the amount of lodging expenses only. Under the per diem substantiation method, if a payer pays a per diem allowance in lieu of reimbursing actual lodging, meal, and incidental expenses incurred or reasonably anticipated to be incurred by an employee for travel away from home, the amount of the expenses that is deemed substantiated for each calendar day is equal to the lesser of the per diem allowance for that day or the amount computed at the federal per diem rate for the locality of travel for that day (or partial day). A separate rule applies if a payer pays a per diem allowance only for meal and incidental expenses in lieu of reimbursing actual meal and incidental expenses incurred or to be incurred by an employee for travel away from home. Special rules and rates apply to the transportation industry. A payer that pays a per diem allowance in lieu of reimbursing actual expenses an employee pays or incurs or will pay or incur for travel away from home may use the high-low substantiation method rather than the per diem substantiation method or the meal and incidental expenses only method. Under the high-low substantiation method, a high rate applies to localities designated as high-cost localities and a low rate applies to every other locality within the continental United States. If a payer uses the high-low substantiation method, the amount of the expenses that is deemed substantiated for each calendar day is equal to the lesser of the actual per diem allowance for that day or the amount computed under section 5.02 of the revenue procedure. Employees and self-employed individuals may not use the high-low substantiation method in lieu of the meal and incidental expenses only deduction method. Taxpayers are not required to use a method described in the guidance and may substantiate actual allowable expenses if they maintain adequate records or other sufficient evidence. Rev. Proc. 2019-48 is effective for per diem allowances for lodging, meal and incidental expenses, or for meal and incidental expenses only that are paid to an employee on or after November 26, 2019, for travel away from home on or after November 26, 2019. For purposes of computing the amount allowable as a deduction for travel away from home, the revenue procedure is effective for meal and incidental expenses or for incidental expenses only paid or incurred on or after November 26, 2019.

Sec. 62 Adjusted gross income defined

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IRS Provides Per Diem Rate Rules for Substantiating Expenses