Payroll administrators will be glad to see that the 2012 federal per diem rates used to substantiate business travel expenses within the continental United States were released by the General Services Administration. The federal per diem is equal to the sum of the federal lodging expense rate and the federal meal and incidental expense rate for designated areas of travel. The federal government publishes per diem rates for federal employees traveling on government business that may be used by other employers to establish allowances that will satisfy the substantiation requirements, according to the Internal Revenue Service.
Recall that the IRS recently announced that they were discontinuing the use of the High-Low method of substantiating expenses. (Advi$or article 8/11/11)
For fiscal year 2012, the standard per diem rate is $77 to reflect the average daily rate for lodging across the country. Reimbursement for meals and incidental expenses remains unchanged from fiscal 2011, ranging from $46 to $71 for meals per day, depending on location, and $5 for incidental expenses. About 2,600 counties are covered by the standard CONUS (Continental US)per diem rate of $123 ($77 lodging, $46 meals and incidental expenses). For 2012, about 400 locations were assigned rates higher than the standard CONUS rate.
If an employer’s per diem rate is less than or equal to the federal per diem rate, the expenses are deemed substantiated and do not qualify as taxable income to employees. If the employer’s per diem rate exceeds the federal rate, amounts paid in excess of the federal per diem must be substantiated by employees or treated as taxable income.
IRS allows employers to apply federal per diem rates to substantiate business-related travel expenses for the government’s fiscal year, effective Oct. 1, or calendar year, if the employer elects to apply the rates on a calendar basis.