Short-term and temporary assignments (typically 3 – 12 months) are increasingly being used by ERI’s subscribers as a best practice for domestic and global assignments. Companies must consider reimbursement policies for these assignments based on how the IRS regards substantiating the amount of ordinary and necessary business expenses incurred while traveling away from home. In lieu of reimbursing its employees for actual travel expenses, an employer may use the per diem rates allowed for federal government employees within the continental United States. The employees must provide support of the time, place, and purpose of the travel. For short-term and temporary assignments, companies may provide corporate housing (and not offer the lodging portion of the per diem). The meals and incidental expense (M&IE) per diem may be offered separately. The federal per diem rate includes the following two parts:
- lodging expenses (not including any lodging tax that may be charged), and
- meals and incidental expense (M&IE), which cover such items as tips and gratuities for bellhops, porters, stewards, and other service providers, as well as laundry and pressing expenses. A recent regulation (Notice 2012-63) details new exclusions from M&IE, such as costs of mailing items like travel vouchers and transportation to and from meals if adequate meals aren’t provided at the work site.
There are a handful of locations that have moved out of the standard rates into non-standard (higher) rates for the fiscal year 2013 (Oct. 1, 2012 – Sept. 30, 2013). However, rates for locations already considered non-standard were frozen. The standard rate for most locations in the continental U.S. remained the same for fiscal year 2013 – $77 for lodging and $46 for M&IE (with $41 allocated for meals and $5 for incidentals).
Instead of using the per diem rates for specific business destinations, an employer may rely on simplified “high-low” rates established annually for travel within the continental U.S. If an employee travels to one of the handful of places designated as a high-cost area, reimbursements are based on the special rate. Otherwise, the employer uses the rate for low-cost areas. Reimbursement is limited to $242 (with $65 for M&IE) to any high-cost area and $163 (with $52 for M&IE) for travel to any other low-cost continental U.S. destination. The high cost areas are considered to have a federal per diem rate of $202 or more. Many of the locations are considered high cost only during certain seasons.
A complete copy of Notice 2012-63 is available for review via http://www.irs.gov/irb/2012-42_IRB/ar12.html.