IRS Raises Per Diem Rates – Is It Enough?

In the current inflationary climate, an increase in business per diem rates was undoubtedly needed; and the IRS delivered; however, many don’t believe the increase will go far enough.

JLK Rosenberger partner Robert Gabon stated, “The benevolent IRS just increased the per-diem rate in a “high-cost locality” from $296 to $297, which is about a 0.34% increase. A recent Forbes article shares that most burger components are up at least 9%. But one ingredient’s inflationary increase has kept in line with the IRS’ thinking – tomatoes. Perhaps the IRS is suggesting you skip the burgers on your next business trip and instead go for the tomato soup or tomato bruschetta.”

Each September, the U.S. General Services Administration (GSA) issues an annual notice through the IRS, setting per diem rates for taxpayers in the 48 contiguous states in the upcoming year. On September 30, Notice 2022-44 was released for Fiscal Year 2023, effective October 1, 2022.

In the latest annual update, a minimal increase was announced – one or two dollars, to be exact. Under the high-low substantiation method for travel within the lower 48, the previous rates were $296 for high-cost and $202 for non-high-cost locations. Now you can expect a per diem of $297 and $204. In 2018, when the U.S. economy was strong and growing rapidly, the high-cost locality per diem was set at $287.

The IRS provides rules for using a per diem rate to substantiate the amount of “ordinary and necessary” business expenses while traveling away from home. They also determine which locations are high-cost localities. Lodging and M&IE (meals and incidental expenses) are covered under set rates. Lodging is expected to cover properties representing mid-range hotels in each market, while M&IE is intended to cover all meals, tips, laundry, and fees associated with these services.

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