The IRS has decided to continue allowing businesses to use the High-Low Substantiation Method to determine per diem rates and has updated the rates under that method.
Businesses often choose to pay a per diem rate to workers in positions away home rather than reimbursing the actual cost of each expense. This is especially common with per diem for contractors because they often relocate temporarily for their contract assignments.
The High-Low Substantiation Method has provided an easy way to determine per diem rates, providing a “low” daily rate that applies to most localities and a “high” rate for certain localities that have a higher cost of living. As we reported in a previous post, the IRS had announced plans to do away with the high-low method but later reconsidered and solicited comments from taxpayers to help them decide.
In Rev. Proc. 2011-47, the IRS states that it will continue the high-low method. This is good news for recruiters who are placing contractors on travel assignments. Because there are only two per diem rates to consider, the High-Low Substantiation Method makes negotiations with clients much easier, and more importantly, much quicker. And if you are running your own back-office, it also removes a significant administrative burden.
The Revenue Procedure also updated the current high-low rates. Effective October 1, the new “high” rate under the High-Low Substantiation Method is $242 ($65 for Meals & Incidentals, or ME&I, only), and the “low” rate is $163 ($52 ME&I).
Going forward, the agency will publish an annual notice to update the rates and the list of high-cost localities rather than issuing a new Revenue Procedure. The IRS will issue new Revenue Procedures on an as-needed basis only.