IRS Clarifies Rules on 100% Deduction for Per-Diem “Meals”

Taxpayers traveling for business reasons may use the federally published per diem rates to substantiate the cost of meals and incidental expenses and, in some cases, lodging expenses rather than the actual expenses incurred. If using the per diem rates, taxpayers do not have to provide any documentation that they incurred the expenses or any documentation of the amount of any expense; the taxpayer merely has to substantiate that they were away from home on business. The per diem rates can be used for deducting expenses and for reimbursements to employees.

These rates are published and vary from location to location.

Historically, only 50% of the cost of business meals was deductible. However, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 raised the deductible amount from 50% to 100% of the meal cost if a restaurant provided it. The new law applies to business-related restaurant expenses in 2021 and 2022. The new law intends to incentivize companies to increase their spending in restaurants, which suffered economically due to various pandemic-related issues.

With increased deductibility for business meals coming from restaurants, uncertainty arose regarding whether the meal portion of the per diem would also be raised to 100% deductibility or remain at 50%. The IRS clarifies in Notice 2021-63 that the per diem allowance for meals also receives the same 100% deductibility.

The rules on using the per diem rates are fairly complex. Contact your CRI tax advisor if you or your employees travel for business and are interested in using this method of deducting expenses or reimbursing employees.