Businesses frequently require employees to travel to other cities and states to attend conferences and meetings and perform job duties at other work sites. Employers often pay work-related travel expenses on behalf of their employees; the travel allowance an employer gives to a worker for lodging, meals and other expenses is called a per diem. The IRS sets standard IRS per diem rates.
The Internal Revenue Service requires employers to include non-cash fringe benefits in the income of employees for tax purposes. For example, if your employer allows you to drive a company car for personal purposes, the value of the benefit is a part of your taxable income. For business travel expenses, the IRS lets employers exclude a certain amount per diem allowance from an employee's wages. The amount of per diem allowance that employers can exclude from wages is known as the per diem rate.
Per diem rates can vary from one city to another within the continental United States or CONUS, but for smaller cities that are not given a specific per diem rate, a standard CONUS per diem rate applies. The U.S. General Services Administration says that the standard CONUS per diem rate is $77 for lodging and $46 for meals and incidental expenses as of July 2011. In other words, employers can exclude up to $123 of an employee's daily per diem allowance from wages.
The General Services Administration says that for large cities that are frequent travel destinations, it sets different per diem rates and reviews them annually. Per diem rates in larger cities are likely to be significantly higher than the standard per diem rate, so employers can exclude more travel expenses from wages for employees traveling to such cities. IRS data show that many large cities like Washington, D.C., New York and San Francisco have per diem rates of $200 or more.
Cities with high costs of living, expensive hotels and restaurants tend to have higher per diem rates. The General Services Administration offers on online tool that lets users search for per diem rates by state and city or ZIP code. Cities that are not listed with specific rates are subject to the standard rate.
