IRS Freezes Per Diem Rates for 2013

By Ken Berry

Now that new per diem rates for business travelers have been released, there's a definite chill in the air. In new Notice 2012-63, the IRS has announced the rates for the government's 2013 fiscal year - spanning October 1, 2012, through September 30, 2013 - have been frozen at the same levels as last year.
 
The rates are established annually by the US General Services Administration (GSA). You can find the updated rates for business locations on the GSA website.
 
Here's the deal: In lieu of reimbursing its employees for actual travel expenses, an employer may use the per diem rates allowed for federal government employees within the continental United States, as long as the employees substantiate the time, place, and business purpose of the travel. This method is considered an accountable plan, so reimbursements aren't subject to payroll or income taxes. However, reimbursements can't exceed the annual maximums established by the government. Also, the rates can't be used by self-employed individuals or those owning 10 percent or more of the company.
 

Talking Points for Clients

  • The per diem rates for the government's 2013 fiscal year are the same as they were in 2012.
  • Per diem rates can't be used by self-employed individuals or those owning 10 percent or more of the company.
  • In lieu of rates for specific business locations, employers may use a simplified high-low method.
  • If an employer uses the high-low method for an employee's travel, it must continue to use that method for all travel by the employee for the entire year.
  • Rates for certain high-cost areas are only seasonal in nature.
  • There are no changes in the list of high-cost areas for 2013.   
The per diem rate includes two parts:
 
1. Lodging expenses (not including any lodging tax that may be charged); and
 
2. Meals and incidental expense (M&IE), which cover such items as tips and gratuities for bellhops, porters, stewards, and other service providers; laundry and pressing expenses; the cost of mailing items like travel vouchers; and transportation to and from meals if adequate meals aren't provided at the work site.
 
In lieu of using the per diem rates for specific business destinations, an employer may rely on simplified "high-low" rates established annually for travel within the continental United States. If an employee travels to one of the handful of places designated as a high-cost area, trouble-free reimbursements are based on the special rate for high-cost areas. Otherwise, the employer uses the rate for low-cost areas.
 
If an employer uses the high-low method for an employee, it must use that method for all travel by the employee for the entire year. Note that the rates for certain high-cost areas are only seasonal in nature. This includes resort areas like Vail, Colorado, and Martha's Vineyard, Massachusetts.
 
For purposes of the high-low method, the per diem rates for the government's 2013 fiscal year are $242 for travel to any high-cost location, and $163 for travel to any other location within the continental United States. Notice 2012-63 also lists high-cost locations that have a federal per diem rate of $202 or more. The per diem rates for meals and incidental expenses only are $65 for travel to any high-cost location, and $52 for travel to any other location within the continental United States.
 
In 2011, the IRS announced that it intended to discontinue the high-low method, but reversed itself after strong objections from the business community. But now it says it will update the list of high-cost areas only when needed (IRS Revenue Procedure 2011-47). There are no changes in this year's list.
 

 

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