According to Notice 2022-44 from the IRS, various regulations outline the rules for using a per diem rate to substantiate the amount of ordinary and necessary business expenses paid or incurred while traveling away from home.
As explained in the Journal of Accountancy, “Generally, in lieu of actual lodging, meal, and incidental expenses incurred, a payer may consider substantiated for federal tax purposes an employee’s expenses incurred for employment-related travel in an amount up to or equaling the federal per diem rate for the locality of travel.”
The IRS statement says that for purposes of the high-low substantiation method, the per diem rates in lieu of the rates described in Notice 2021-52 (the per diem substantiation method) are $297 for travel to any high-cost locality and $204 for travel to any other locality within the continental United States.
The IRS statement also lists localities that have a federal per diem rate of $250 or more and are high-cost localities for the specified portion of the calendar year.
According to a statement from the Virginia Society of Tax & Accounting Professionals, “Use of a per diem substantiation method is not mandatory. A taxpayer may substantiate actual allowable expenses if the taxpayer maintains adequate records or other sufficient evidence for proper substantiation.”
Overall, the rules are complicated, so businesses should seek advice from KPM’s qualified tax professionals.