Benefits and Compensation

IRS Doesn’t Want to Play High-low Anymore

The IRS announced July 19 that it intends to eliminate a set of alternative per diem rates called the “high-low” rates, which the federal government — and at their discretion, private employers — use to reimburse employees for meals and incidental expenses they incur while on business travel.

In Announcement 2011-42, the IRS said it had requested comments last October on the continuing need for the high-low methodology, and received none. The announcement states, “Accordingly, the Service intends to discontinue authorizing the high-low substantiation method,” but it does not provide an effective date.

The IRS says it will publish a revenue procedure providing the general rules and procedures for substantiating lodging, meal and incidental expenses.

What This Means

The high-low rates provide an alternative to using the CONUS per diem rates that the General Services Administration (GSA) sets each year for the reimbursement of employees’ lodging, meals and incidental expenses incurred while traveling on their employer’s business to hundreds of locations within the continental United States. Federal offices must use the CONUS rates, but they are optional for private-sector employers.

Nonetheless, private-sector employers find the CONUS rates useful since they also are tax thresholds; reimbursement amounts employees receive that are above those rates are taxable income. The high-low rates have been an alternative to the CONUS rates that some employers may consider administratively simpler to use, since they entail only two rates rather than rates set for over 400 locations.

When the IRS stops issuing the high-low rates, employers and plan administrators will need to closely watch IRS guidance regarding whether there is an alternative to the CONUS per diem rates.

Here’s a downloadable excel file with the 2011 per diem rates for FY 2011.