The Internal Revenue Service (IRS) updated its special per diem rates for the transportation industry, incidental expenses, and the “high-low” substantiation method. These rates, announced September 25 in Notice 2017-54, apply to allowances paid to employees on or after October 1 for travel on or after that date.
The IRS’ high-low rates, used by government travelers as an alternative to the U.S. General Services Administration’s (GSA) standard per diems, were raised slightly from the fiscal year 2017 levels—$284 for travel to any high-cost locality (up from $282) and $191 (formerly $189) for any other locality in the continental United States (CONUS). The rates for meal and incidental expenses only remained unchanged at $68 and $57, respectively.
The IRS added seven places to its listing of “high-cost” localities, defined as those with a federal per diem of $238 or more: Oakland, California; Lewes, Delaware; Fort Myers, Florida; Hyannis, Massachusetts; Petoskey, Michigan; Portland, Oregon; and Vancouver, Washington. Meanwhile, Sedona, Arizona; Los Angeles, California; Vero Beach, Florida; and Kill Devil, North Carolina were taken off the list, and the dates of high-cost status were adjusted for 10 other locales.
The special meal and incidental expenses (M&IE) rates for the transportation industry remained $63 for any CONUS locality and $68 for any location outside the continental United States (OCONUS). For deduction of incidental expenses only, the CONUS and OCONUS rate remained $5.
Incidental Expenses Defined
The high-low rates cover reimbursement of expenses for meals, lodging, and incidentals. Incidental expenses include only tips given to porters, baggage carriers, hotel staff, and ship personnel. Incidentals do not include:
- Transportation between places of lodging or business and places where a traveler has a meal;
- The cost of mailing travel vouchers; or
- The cost of paying bills for purchases made on employer-sponsored credit cards.
In 2012 the GSA, which sets travel policy for the federal government, issued regulations revising the definition of “incidental expenses” to exclude the three items above. Accordingly, taxpayers using per diem rates may separately deduct or be reimbursed for transportation and mailing expenses.
GSA Rates
The GSA’s federal travel per diems for FY 2018, issued in August, increased the standard CONUS lodging rate from $91 to $93. The M&IE reimbursement rate tiers remained the same, and no new nonstandard locations were added.