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Per Diem Meaning: What is the GSA Per Diem Rate and How is it Used

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Understanding GSA Per Diem Rates in 2023: A Comprehensive Guide for the Per Diem Meaning

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Per Diem rates are an essential aspect of business travel, but what exactly does "per diem" mean, and how do these rates work in practice? This guide will provide a detailed understanding of per diem payments, their importance, and how they are calculated, particularly in the 2023 Tax Year for the 2024 Tax Season.

What does Per Diem mean?

Per diem, a Latin phrase meaning "for each day," is a daily allowance employees give to cover lodging, meals, and incidental expenses during business travel. This system simplifies expense tracking and reimbursement for both employers and employees. It's crucial in managing travel expenses efficiently and ensuring that employees are adequately compensated for their out-of-pocket expenses during business trips.

The Basics of Per Diem Allowance

The per diem allowance covers the basic expenses incurred while traveling for work. This includes lodging, meals, and incidental expenses like fees and tips. The idea is to provide a comfortable yet reasonable allowance that covers the cost of living away from home.

Per Diem as a Business Expense

For companies, per diem payments are essential to managing business travel expenses. These payments help simplify budgeting for travel and ensure that employees are not burdened financially while on the road for business purposes.

How are Per Diem Rates Determined?

The General Services Administration (GSA) in the US typically sets per diem rates. These rates are based on the travel destination and are reviewed and updated annually to reflect the current cost of living and changes in market prices.

GSA and Per Diem Rates

The GSA's role is to establish fair and equitable per diem rates. They conduct market surveys and analyze the cost of lodging, meals, and incidental expenses in different locations across the US.

Factors Influencing Per Diem Rates

Several factors influence the determination of per diem rates, including the cost of living in the travel destination, inflation rates, and seasonal variations in accommodation and food prices.

Are Per Diem Payments Taxable?

Generally, per diem payments are not taxable as long as they are properly documented and do not exceed the federal per diem rate. However, there are specific criteria and conditions under which these payments may become taxable.

Tax Implications of Per Diem

The Internal Revenue Service (IRS) provides guidelines on the taxability of per diem allowances. If the per diem rate exceeds the federal rate, or if the employee does not provide adequate documentation, the excess amount may be subject to income tax.

Maintaining Non-Taxable Status

Per diem payments must adhere to the federal rates and be appropriately reported to maintain their non-taxable status. Employers must ensure that their travel policies align with IRS guidelines to avoid unnecessary employee tax burdens.

Federal Per Diem Rates in 2023: What's New?

In 2023, there have been updates to per diem rates reflecting current economic conditions. Travelers and companies must know these changes to ensure compliance and efficient travel budgeting.

Country City Per Diem Rate
Continental U.S. Urban Area $185
Continental U.S. Non-Urban Area $159
Alaska All Areas $281
Hawaii All Areas $230
Puerto Rico All Areas $185
France Paris $241
United Kingdom London $234
Italy Rome $206
Spain Barcelona $203
Germany Berlin $215

Key Changes in 2023 Per Diem Rates

The updates may include changes in the standard rate, adjustments for specific locations, and modifications in calculating these rates. These changes are often influenced by economic factors like inflation and changes in the hospitality industry.

Impact of 2023 Rates on Business Travel

The new per diem rates will directly impact how businesses budget for and reimburse travel expenses. Companies need to update their policies and systems to align with these changes.

Understanding Lodging Per Diems

Lodging per diem specifically covers the cost of accommodation. The GSA determines this part of the per diem and varies significantly based on the geographical area.

Calculating Lodging Per Diem

The lodging per diem is calculated based on average hotel rates in the area. It aims to provide a reasonable allowance that covers the cost of a standard hotel room, including taxes and fees.

Considerations for Lodging Allowance

When determining lodging allowances, factors like seasonality, local events, and overall demand are considered to ensure that the per diem rate is realistic and fair.

Meals and Incidental Expenses (M&IE)

The per diem rate for meals and incidental expenses (M&IE) covers the cost of food and minor incidental costs. This rate is separate from the lodging per diem and varies depending on the travel location.

Breakdown of M&IE

M&IE is typically broken down into specific amounts for meals (breakfast, lunch, dinner) and a small amount for incidental expenses. This breakdown provides clarity and simplifies expense tracking for travelers.

Variability of M&IE Rates

M&IE rates vary based on the cost of meals and incidental expenses in different locations. High-cost areas will have a higher M&IE rate than areas with lower living costs.

How Does Per Diem Differ from Reimbursement?

Per diem and reimbursement are two different methods of handling travel expenses. While per diem provides a fixed daily rate, reimbursement is based on the actual expenses incurred, supported by receipts and documentation.

Benefits of Per Diem Over Reimbursement

Per diem simplifies the expense process, as it does not require detailed expense tracking and receipt collection. It also provides a predictable amount that employees can rely on.

Choosing Between Per Diem and Reimbursement

The choice between per diem and reimbursement depends on various factors, including the nature of the travel, company policy, and employee preference. Some companies may offer a choice between the two methods.

Per Diem for International Travel: Less than the Federal Per Diem Work?

For international travel, per diem rates are set by the Department of State and can differ significantly from domestic rates. These rates take into account the higher costs often associated with international travel.

Department of State and International Per Diem

The Department of State establishes per diem rates for international locations, considering factors like currency exchange rates, cost of living differences, and geopolitical situations.

Managing International Travel Expenses

For international business travel, it's essential to understand the per diem rates for the specific destination and to budget accordingly. Companies should provide clear guidance to employees on managing expenses in foreign currencies.

Per Diem and Business Expense Reports

When employees receive a per diem, they are often required to submit a business expense report, particularly if their per diem rate exceeds the standard allowance or if they incur additional reimbursable expenses.

Documentation and Expense Reporting

Even with per diem allowances, employees may need to provide documentation for certain expenses, particularly if they exceed the standard per diem rate. Accurate record-keeping is essential.

Compliance with Company Policy

Employees must adhere to company policies regarding expense reporting and documentation. These policies are designed to ensure compliance with IRS regulations and to maintain transparency in expense management.

Managing Per Diem Payments: Best Practices

Effectively managing per diem payments is crucial for both employers and employees. It involves understanding per diem policies, keeping accurate records, and ensuring that payments align with federal rates.

Establishing Clear Per Diem Policies

Companies should have clear and concise per diem policies that are easily understood by all employees. These policies should outline how per diem rates are determined, how payments are processed, and the documentation required.

Record-Keeping and Compliance

Accurate record-keeping is essential for compliance with IRS regulations and for maintaining transparency in financial reporting. Both employers and employees should keep detailed records of travel expenses and per diem payments.

Best Practices for Employees Receiving Per Diem

Employees should understand their company's per diem policy, keep track of their expenses, and ensure they stay within the allotted per diem rates. They should also be aware of the tax implications of per diem payments.

Key Terms: Learn more about what Per Diem Payments Cover

Term Description
Per Diem Meaning Per diem, Latin for "for each day," refers to a daily allowance for business travel expenses.
Per Diem Reimbursement Compensation for employees' travel expenses at a fixed daily rate.
Fixed Per Diem Predetermined daily allowance covering lodging, meals, and incidental expenses during travel.
Business Travel and Expenses Per diem simplifies managing expenses incurred during official work-related travel.
Receiving a Per Diem Employees on business trips receive per diem to cover travel costs.
Per Diem Amounts Set by the GSA in the U.S., varying based on location, cost of living, and travel purpose.
Lodging Per Diem A portion of per diem designated for accommodation expenses.
Standard Rate and GSA's Role GSA establishes standard per diem rates based on factors like location and cost of living.
Federal Per Diem Reimbursement Rates Designed to cover out-of-pocket expenses without being excessive.
Payments to Employees and Tax Implications Regulated by the IRS; generally not taxable if within federal guidelines.
Setting Per Diem Rates GSA sets rates annually based on market research and cost analysis.
Per Diem Travel and its Flexibility Simplifies travel expense management for companies and employees.
Reimbursement Within 60 Days Processing per diem reimbursements within this timeframe avoids tax implications.
Mileage Reimbursement Rate Separate from per diem, reimburses employees per mile for personal vehicle use.
Per Diem Expenses on Days of Travel Different rates may apply on departure and return days.
Continental United States Travel Specific per diem rates distinct from international travel.
Federal Employees and Official Travel Receive per diem according to rates established by the federal government.
Submitting a Business Expense Report Required when actual expenses exceed fixed per diem or for specific reimbursable costs.
Travel Policy Compliance Employees must adhere to company and federal guidelines, especially for non-continental U.S. travel.
Per Diem in Different Work Contexts Applies to various travel types, including temporary duty locations and assignments within the continental U.S. and territories.
Managing Travel Expenses Effectively Companies should ensure clear policies and employee understanding of the per diem method.
Per Diem Based on Contractor-Provided Rates Some companies use contractor-provided rates for specific contracts or projects.
Tax Considerations for Per Diem Payments Payments may be subject to income tax if exceeding prescribed rates or without proper documentation.
Employers' Responsibility to Reimburse Essential for efficient and fair management of business travel expenses.
Record Keeping and Documentation Essential for compliance with IRS regulations and company policies.

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Tickmark, Inc. and its affiliates do not provide legal, tax or accounting advice. The information provided on this website does not, and is not intended to, constitute legal, tax or accounting advice or recommendations. All information prepared on this site is for informational purposes only, and should not be relied on for legal, tax or accounting advice. You should consult your own legal, tax or accounting advisors before engaging in any transaction. The content on this website is provided “as is;” no representations are made that the content is error-free.

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published

November 17, 2023

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Antonio Del Cueto, CPA

Antonio Del Cueto, CPA

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