IRS Issues 2021-2022 Special Per Diem Rates

(Parker Tax Publishing September 2021)

The IRS issued the 2021-2022 special per diem rates for taxpayers to use in substantiating the amount of ordinary and necessary business expenses incurred while traveling away from home. The list of high-cost localities differs from the list of high-cost localities in last year's per diem guidance. Notice 2021-52.

In Notice 2021-52, the IRS issued the annual update on special per diem rates used in substantiating the amount of ordinary and necessary business expenses incurred while traveling away from home. Specifically, the notice provides: (1) the special transportation industry meal and incidental expenses rates (M&IE rates); (2) the rate for the incidental expenses only deduction; and (3) the rates and list of high-cost localities for purposes of the high-low substantiation method.

Notice 2021-52 is effective for per diem allowances for lodging, meal and incidental expenses, or for meal and incidental expenses only, that are paid to any employee on or after October 1, 2021, for travel away from home on or after October 1, 2021. Rates for the period of October 1, 2020, to September 30, 2021, can be found in Notice 2020-71.

Taxpayers using the rates and list of high-cost localities provided in Notice 2021-52 must comply with Rev. Proc. 2019-48, which provides rules for using a per diem rate to substantiate, under Code Sec. 274(d) and Reg. Sec. 1.274-5, the amount of ordinary and necessary business expenses paid or incurred while traveling away from home.

The special M&IE rates for taxpayers in the transportation industry are $69 for any locality of travel in the continental U.S. and $74 for any locality of travel outside the continental U.S. (up from $66 and $71, respectively). The rate for any locality of travel in or outside of the continental U.S. for the incidental-expenses-only deduction is $5 per day (same as last year).

For purposes of the high-low substantiation method, the per diem rates are $296 for travel to any high-cost locality and $202 for travel to any other locality within the continental U.S. (up from $292 and $198, respectively). The amount of the $296 high rate and $202 low rate that is treated as paid for meals for purposes of Code Sec. 274(n) is $74 for travel to any high-cost locality and $64 for travel to any other locality within the continental U.S. (up from $71 and $60, respectively). The per diem rates for the meal and incidental expenses only substantiation method are $74 for travel to any high-cost locality and $64 for travel to any other locality within the continental U.S. (up from $71 and $60, respectively).

The list of high-cost localities in Notice 2021-52 differs from the list of high-cost localities in Notice 2020-71. The following locality has been added to the list of high-cost localities: Hilton Head, South Carolina. The following locality has changed the portion of the year in which it is a high-cost locality: Jamestown/Middletown/Newport, Rhode Island. The following locality has been removed from the list of high-cost localities: Gulf Breeze, Florida. In addition, the specified period for which Sedona, Arizona is a high cost locality under Notice 2020-71 is modified to be October 1, 2020 - December 31, 2020; March 1, 2021 - April 30, 2021; and September 1, 2021 - September 30, 2021.

For a discussion of the substantiation rules for expenses incurred while traveling away from home, see Parker Tax ¶91,130.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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