IRS Per Diem Rates for 2023
Per diem is an important term for employers with employees who regularly travel for business-related events. If employers aren’t up to date with per diem rates, they could land themselves in some trouble with the IRS.
When reimbursing employees, many companies adopt the federal per diem rates for simplicity’s sake.
This article will explain the new IRS per diem rates for 2023 and how these are different from last year’s. We’ll also share some helpful tips in dealing with per diem pay for your employees.
Table of Contents
1. What is Per Diem?
2. 2023 Per Diem Rates Effective October 2022
3. Do You Have to Pay the IRS Per Diem Rates?
4. What Changed From Last Year?
5. What Does Per Diem Cover?
6. Per Diem Rate Methods
7. Additional Per Diem Expenses
8. Per Diem for Travel Outside the U.S.
What is Per Diem?
Word-for-word translation of “per diem” means “for the day.”
In financial terms, per diem is the term for what companies pay employees as a fixed daily amount to cover expenses while traveling for work.
These are considered business expenses and are classified as non-taxable by the Internal Revenue Service.
Per diem can either be reimbursed, paid up front or covered via a prepaid company credit card.
2023 Per Diem Rates Effective October 2022
Federal per diem rates are published each fiscal year on the General Services Administration website. Each October, this site is updated with the new rates.
You can look up your specific per diem rates by area and date by entering all the required data on their handy per diem lookup tool here.
The 2023 standard per diem for most of the US is $157, which breaks down to $98 for lodging and $59 for meals and incidentals.
It’s important to know that these rates fluctuate depending on the destination of travel, and they only cover the 48 states of the continental United States and the District of Columbia.
There are certain locations called high-cost localities where the IRS has set higher per diem rates due to the pricier cost of living in that area.
The Department of Defense sets per diem rates for Alaska, Hawaii and the US Territories.
Do You Have to Pay the IRS Per Diem Rates?
If you do not use the IRS per diem rates, your employees may have to pay taxes on any reimbursement they receive that exceeds the rates.
So, no, you don’t have to use them, but most employers prefer to in order to avoid these taxes.
Per diem income is non-taxable as long as the amounts don’t exceed the rates followed by the GSA, and the business can present an expense report.
Any per diem payments that exceed the rates determined by the federal government will be considered taxable income and must be listed as so on their income tax.
This non-taxed status is one of many reasons that following the IRS per diem rate is smart payroll tactics. However, it is up to each employer to determine their per diem allowances.
Check out this quick read for more answers about per diem and taxes.
What Changed From Last Year?
According to the GSA Per Diem 2023 Highlights, not much has changed from last year’s rates.
The standard lodging rate for most of CONUS raised from $96 to $98 per day. The M&IE (Meals & Incidental Expenses) rates remain the same.
There are no new high-cost localities, but three localities that were considered high-cost last year are dropping down to the standard rate:
- El Paso, Texas
- Rock Springs, Wyoming
- Cromwell/Old Saybrook, Connecticut
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What Does Per Diem Cover?
Per diem covers only certain expenses during an employee’s travels.
Transportation
The cost of shuttles or taxis used to get to and from the airport or business event can be included in per diem.
These costs may also include car rentals, ride-share fees, and public transportation.
Lodging
Employees’ lodging expenses are considered part of the per diem pay when they stay overnight for business.
Whether they stay in a chain hotel, boutique hotel, extended stay apartment, or even an Airbnb, this expense should be considered when calculating the per diem rate.
Of course, the lodging rate can fluctuate greatly depending on where the employee is traveling, which we’ll discuss in further detail later.
One way your business can save on these lodging costs while still accessing a variety of locations is to use Hotel Engine. Hotel Engine assists companies with corporate travel by offering hassle-free booking, automated budgeting, and 24/7 support.
Meals
Meals eaten during business travel are also considered a part of per diem expenses.
Food ordered at restaurants on the road, as room service while at a hotel, or groceries bought to eat while on a business trip are included in meal expenses.
Incidental Expenses
Incidental expenses are usually just tips, but they can also include service fees such as dry cleaning, cab fares, ATMs, and tolls.
These expenses are usually lumped together with meals for M&IE in per diem.
Mileage
When a privately owned vehicle is used to travel to a business destination, it is common for the employee to be reimbursed for the mileage placed on their car based on the company mileage policy.
The IRS has a standard rate for mileage rates for 2022 posted here. They will be updated in December of 2023.
What It Doesn’t Cover
There are some expenses that aren’t covered by per diem.
These include alcohol, entertainment, souvenirs, postcards, and other non-business-related expenses.
Per Diem Rate Methods
Several methods can be used to determine the per diem rate a company will use.
Aside from a separate corporate policy, these three are the main methods used, especially by small businesses.
Standard Reimbursement Rates
The standard reimbursement method is dependent on the travel location. Each town will have a different rate.
The GSA has determined localized rates based on the cost of living in the area. They have a handy search tool available to calculate the standard per diem rate based on city or zip code.
This is a more specific method of calculating per diem, which differs from the high-low method. We will highlight the difference between the two under the corresponding heading.
Self-employed individuals must use this method in order to claim per diem on their income tax.
M&IE Rates
This reimbursement model is used when employees don’t spend the night at their destination. Only meals and incidental expenses are covered.
According to the GSA, M&IE rates can be from $59 to $79 inside the US.
High-Low
Another method is to break all per diem into two rates; one for high-cost localities and another for all other cities.
Using the standard method requires looking up the rate for the specific area. If the area does not have a specified rate on the GSA lookup tool, you will use the standard $157 per diem.
The high-low method separates areas into two groups. One group has a higher per diem, the other lower. This is just a simpler way of calculating per diem.
This year the IRS has set the high rates at $296 and the low at $202.
The IRS determines the list of high-cost localities. Some locales are considered high-cost only during certain times of the year.
It is up to each company to decide which per diem method they prefer to use.
Additional Per Diem Expenses
Along with the above three methods, there are additional types of per diem, some industry-specific.
Special Per Diem Rate for Transportation Industry
There is a special per diem rate for those who are considered part of the transportation industry.
Since these individuals have roles in travel and logistics, traditional per diem rates and rules wouldn’t work the same way. However, they still need compensation for expenses.
For example, a trucker on the road often sleeps in the cab of his semi instead of truck friendly hotels, so lodging expenses are rarely needed, but they still have to eat.
This special rate is meant to cover transportation industry meal expenses.
The special rate for travel in CONUS is $69 per day. Any travel outside of the continental US (OCONUS) is $74 per day.
Incidental Expenses Only Deduction
At times, a company will prepay for many of the expenses incurred on a business trip but still allow for incidentals.
This rate is set at $5 per day and is mainly used to provide tips.
Per Diem for Travel Outside the U.S.
So far, we’ve discussed the per diem rates for the continental US. However, there are some set per diems for travel outside the country.
When traveling to US territories or off-continent states, the Department of Defense determines the per diem rates. These territories include Alaska, Hawaii, Guam and Puerto Rico.
International travel per diem rates are set by the US Department of State.
Keeping up with the new IRS per diem rates each year can help your business simplify your expenses and ensure that you’re adhering to legal per diem policies.
There’s no better way to deal with labor laws than the simplest way. Following the standard set by the federal government is by far the simplest.
Hotel Engine’s smart billing and reporting dashboards make tracking your per diem allowances even easier. Incidentals can even be covered by the company account and billed later on a single invoice — removing the need to worry about per diem or reimbursements at all.
Instead of having your employees use their own credit cards for incidentals, we take care of that upfront and bill you one invoice at the end of the month with any incurred incidentals clearly itemized.
Just one less headache for you, and a less complicated check-in for them. Hotel Engine’s got your back.
