October 6, 2020 12:01 am

Hi-Low Substantiation Rates for Business Travel

Employers that want to use a per diem rate to reimburse employees’ lodging, meals, and incidental expenses on business trips within the continental U.S. (CONUS) can use either the IRS’s high-low method or a reimbursement rate provided by the General Services Administration used by the federal government to reimburse federal employees at https://www.gsa.gov/travel/plan-book/per-diem-rates. These rates run on the government’s fiscal year beginning October 1.

The IRS has announced its rates for the high-low method beginning October 1, 2020, through September 30, 2021 (Notice 2020-71). If these rates are used, the costs are considered substantiated (no receipts are required) as long as the employee is not related to the employer. The list of high-cost areas has changed somewhat since the last fiscal year.

  • The following localities have been added to the list of high-cost localities: Los Angeles, California; San Diego, California; Gulf Breeze, Florida; Kennebunk/Kittery/Sanford, Maine; Virginia Beach, Virginia.
  • The following localities have changed the portion of the year in which they are high-cost localities: Sedona, Arizona; Monterey, California; Santa Barbara, California; District of Columbia; Naples, Florida; Jekyll Island/Brunswick, Georgia; Boston/Cambridge, Massachusetts; Philadelphia, Pennsylvania; Jamestown/Middletown/Newport, Rhode Island; Charleston, South Carolina.
  • The following localities have been removed from the list of high-cost localities: Midland/Odessa, Texas; Pecos, Texas.

For designated high-cost areas within CONUS, the per diem rate effective October 1 is $292 (down from $297). For all other CONUS areas, the so-called low-cost rate is $198 (down from $200). The portion of the $292 high-cost area rate for meals is $71, while $60 of the $198 rate is treated as paid for meals (unchanged from the prior fiscal year). Employers may deduct 50% of the meals portion.

Employees and self-employed individuals in the transportation industry (e.g., long-haul truckers) can use a flat rate for deducting meals and incidental expenses. The rate starting October 1, 2020, is $66 for CONUS and $71 for any travel outside of CONUS (unchanged from the prior fiscal year).

Note: Self-employed individuals cannot use the high-low method. They must substantiate actual lodging costs but can rely on the federal per diem rate for meals.

Tax Glossary

Qualifying widow or widower

A filing status entitling the taxpayer with dependents to use joint tax rates for up to two tax years after the death of a spouse.

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