High-Cost and Low-Cost Area Per Diem Rates Increase

November 5, 2014

The IRS has increased both the high- and low-cost per diem rates.

An employer that pays a per diem allowance in lieu of reimbursing actual expenses that an employee pays or incurs for travel away from home may use the high-low method. Under the high-low method, a high rate applies to areas designated as high-cost localities, and a low rate applies to every other locality within the continental United States.

The federal per diem rates are generally adjusted every Oct. 1. The 2014-2015 special per diem rates, according to IRS Notice 2014-57, have increased as follows:

• The high-cost area per diem rates increased from $251 to $259 per day.
• The low-cost area per diem rates have increased from $170 to $172 per day.

The IRS publishes a listing of various cities that it considers to be high-rate localities. If you are away on business in one of these cities, you can use the high-cost per diem rate to reimburse yourself for lodging, meals and incidental expenses.

This rate would be in lieu of reimbursement for your actual expenses. By using the rate, you don’t have to keep a receipt for every single item you purchase.

If you are away on business in a city that is not considered to be a high-rate locality, you would use the low-cost area per diem rates for reimbursement.

Notice 2014-57 provides the new per diem rates and lists any additions or subtractions to the high-cost area list.

The rules and procedures regarding claiming per diem expense deductions are outlined in Rev. Proc. 2011-47. Only the per diem amounts have changed, not the basic rules and procedures.