Are you and your employees frustrated by the time-consuming task of documenting and reviewing travel expenses? The IRS offers simplified methods for reimbursing employees’ out-of-town lodging, meals, and incidental expenses. Here’s what you’ll need to know to determine if this simplified approach is right for your business.

High-Low Method

Under the “high-low method,” the IRS establishes an annual flat rate for certain areas with higher costs of living. All locations within the continental United States that aren’t listed as “high-cost” automatically fall into the low-cost category. The high-low method may be used in lieu of specific per diem rates for business destinations. Examples of high-cost areas include San Francisco, Boston, and Washington, D.C. (See the chart below for a complete list by state.)

Under some circumstances — for example, if an employer provides lodging or pays the hotel directly — employees may receive a per diem reimbursement only for their meals and incidental expenses. There’s also a $5 incidental-expenses-only rate for employees who don’t pay or incur meal expenses for a calendar day (or partial day) of travel.

The following items aren’t considered incidental expenses:

• Transportation between places of lodging or business and places where meals are taken, and
• The mailing cost of filing travel vouchers and paying employer-sponsored charge card billings.

You should consider reimbursing employees separately for these expenses and then deducting the amounts as ordinary business expenses.

No More Receipts

If your company uses per diem rates, employees don’t have to meet the usual recordkeeping rules required by law. Receipts of expenses generally aren’t required under the per diem method. Instead, your organization simply pays the specified allowance to employees.

However, employees still must substantiate the time, place, and business purpose of the travel. Per diem reimbursements generally aren’t subject to income or payroll tax withholding or reported on the employee’s Form W-2. It’s also important to note that per diem rates can’t be paid to individuals who own 10% or more of the business. 

Updated Rates

The IRS recently updated the per diem rates for business travel for fiscal year 2024, which started on October 1, 2023. Under the high-low method, the per diem rate for all high-cost areas within the continental United States is $309 for post-September 30, 2023, travel ($235 for lodging and $74 for meals and incidental expenses). For all other areas within the continental United States, the per diem rate is $214 for post-September 30, 2023, travel ($150 for lodging and $64 for meals and incidental expenses). Compared to the prior simplified per diems, the high-cost area per diem has increased $12, and the low-cost area per diem has increased $10.

The IRS also modified the list of high-cost areas for post-September 30 travel. The following locations have been added ‘to the high-cost list:

• Yosemite National Park, Calif.,
• Tampa/St. Petersburg, Fla.,
• Atlanta, Ga.,
• Missoula, Mont.,
• Saratoga Springs/Schenectady, N.Y.,
• Eugene/Florence, Ore., and
• Montpelier, Vt.

The following locations have been removed from the high-cost list:

• Los Angeles, Calif.,
• Durango, Colo.,
• Portland, Ore., and
• Vancouver, Wash.

In addition, certain tourist-attraction areas only count as high-cost areas on a seasonal basis. Starting on October 1, the portion of the year in which the following locations are high-cost localities has changed:

• San Diego, Calif.,
• Fort Lauderdale, Fla.,
• Fort Myers, Fla.,
• Fort Walton Beach/DeFuniak Springs, Fla.,
• Miami, Fla.,
• Vero Beach, Fla.,
• Portland, Maine,
• Hilton Head, S.C.,
• Manchester, Vt.,
• Seattle, Wash., and
• Washington, D.C.

Important: This method is subject to various rules and restrictions. For example, if you use the high-low method for an employee, you must continue to use it for all reimbursement of business travel expenses within the continental United States during the calendar year. Your company may use any permissible method to reimburse that employee for any travel outside the continental United States, however.

For travel during the last three months of a calendar year, you must continue to use the same method (per diem or high-low) for an employee as you used during the first nine months of the calendar year. Also, your organization may use either:

1. The rates and high-cost localities in effect for the first nine months of the calendar year, or
2. The updated rates and high-cost localities in effect for the last three months of the calendar year, as long as you use the same rates and localities consistently for all employees reimbursed under the high-low method.

Deductions for Employers

In terms of deducting amounts reimbursed to employees on a company’s tax return, employers must treat meals and incidental expenses as a food and beverage expense that’s subject to the 50% deduction limit on meal expenses. For certain types of employees — such as air transport workers, interstate truckers and bus drivers — the percentage is 80% for food and beverage expenses related to a period of duty, subject to the hours-of-service limits of the U.S. Department of Transportation.

Example: A company reimburses its marketing manager for attending a June trade show in Chicago based on the $309 high-cost per diem. It may deduct $272 ($235 for lodging plus $37 for half of the meals and incidental expense allowance).

For More Information

Don’t let expense reimbursements for business travel become a source of frustration for you or your employees. Contact your tax advisor for ideas to simplify the reimbursement process that will pass IRS scrutiny, while eliminating administrative red tape.

* If no effective date is listed, the location is a high-cost area all year long. – Source: IRS

State	Key City	Effective Dates
Alabama	Gulf Shores	June 1 – July 31
Arizona	Phoenix/Scottsdale	February 1 – March 31
Arizona	Sedona
California	Mill Valley/San Rafael/Novato	October 1 – October 31; June 1 – September 30
California	Monterey	June 1 – August 31
California	Napa
California	Oakland
California	San Diego
California	San Francisco
California	San Luis Obispo	June 1 – August 31
California	San Mateo/Foster City/Belmont
California	Santa Barbara
California	Santa Monica
California	Sunnyvale/Palo Alto/San Jose
California	Yosemite National Park
Colorado	Aspen	October 1 – March 31; June 1 – September 30
Colorado	Denver/Aurora	October 1 – October 31; April 1 – September 30
Colorado	Grand Lake	December 1 – March 31
Colorado	Silverthorne/Breckenridge	October 1 – March 31; June 1 – September 30
Colorado	Steamboat Springs	December 1 – March 31
Colorado	Telluride
Colorado	Vail
Delaware	Lewes	July 1 – August 31
District of Columbia	Washington, D.C.	October 1 – June 30; September 1 – September 30
Florida	Boca Raton/Delray Beach/Jupiter	December 1 – April 30
Florida	Bradenton	February 1 – March 31
Florida	Cocoa Beach	February 1 – March 31
Florida	Fort Lauderdale	January 1 – April 30
Florida	Fort Myers	December 1 – March 31
Florida	Fort Walton Beach/DeFuniak Springs	June 1 – July 31
Florida	Gulf Breeze	June 1 – July 31
Florida	Key West	October 1 – September 30
Florida	Miami	December 1 – May 31
Florida	Naples	December 1 – April 30
Florida	Panama City	June 1 – July 31
Florida	Pensacola	June 1 – July 31
Florida	Punta Gorda	February 1 – March 31
Florida	Sarasota	February 1 – April 30
Florida	Sebring	February 1 – March 31
Florida	Stuart	February 1 – March 31
Florida	Tampa/St. Petersburg	January 1 – April 30
Florida	Vero Beach
Georgia	Atlanta	January 1 – March 31
Georgia	Jekyll Island/Brunswick	March 1 – July 31
Idaho	Sun Valley/Ketchum	December 1 – March 31; June 1 – September 30
Illinois	Chicago	October 1 – November 30; April 1 – September 30
Maine	Bar Harbor/Rockport	October 1 – October 31; July 1 – September 30
Maine	Kennebunk/Kittery/Sanford	July 1 – August 31
Maine	Portland	October 1 – October 31; July 1 – September 30
Maryland	Ocean City	July 1 – August 31
Massachusetts	Boston/Cambridge
Massachusetts	Falmouth	May 1 – August 31
Massachusetts	Hyannis	July 1 – August 31
Massachusetts	Martha’s Vineyard
Massachusetts	Nantucket
Michigan	Mackinac Island	July 1 – August 31
Michigan	Petoskey	July 1 – August 31
Michigan	Traverse City	July 1 – August 31
Minnesota	Duluth	October 1 – October 31; June 1 – September 30
Montana	Big Sky/West Yellowstone/Gardiner	June 1 – September 30
Montana	Kalispell/Whitefish	July 1 – August 31
Montana	Missoula	June 1 – September 30
New Jersey	Toms River	July 1 – August 31
New Mexico	Carlsbad
New York	Glens Falls	July 1 – August 31
New York	Lake Placid	July 1 – August 31
New York	New York City	October 1 – December 31; March 1 – September 30
New York	Saratoga Springs/Schenectady	July 1 – August 31
North Carolina	Kill Devil Hills	April 1 – September 30
Oregon	Eugene/Florence	June 1 – July 31
Oregon	Lincoln City	July 1 – August 31
Oregon	Seaside	July 1 – August 31
Pennsylvania	Hershey	June 1 – August 31
Pennsylvania	Philadelphia	October 1 – November 30; March 1 – June 30; September 1 – September 30
Rhode Island	Jamestown/Middletown/Newport	October 1 – October 31; June 1 – September 30
South Carolina	Charleston
South Carolina	Hilton Head	March 1 – August 31
South Carolina	Myrtle Beach	June 1 – August 31
Tennessee	Nashville
Utah	Moab	October 1 – October 31; March 1 – September 30
Utah	Park City
Vermont	Manchester	October 1 – October 31; August 1 – September 30
Vermont	Montpelier	October 1 – October 31; August 1 – September 30
Virginia	Virginia Beach	June 1 – August 31
Virginia	Wallops Island	July 1 – August 31
Washington	Port Angeles/Port Townsend	July 1 – August 31
Washington	Seattle	October 1 – October 31; May 1 – September 30
Wyoming	Cody	June 1 – September 30
Wyoming	Jackson/Pinedale