Per Diem Options: Stable Income or Higher Earnings?

Per diem: One approach is stable, while another is higher

Truck drivers and motor carriers will see two different changes in federal per diem rates for the fiscal year beginning Oct. 1. The Internal Revenue Service will leave its transportation-specific meals and incidental expense rate unchanged, while increasing the rates used under the High-Low Substantiation Method.

For transportation workers, the IRS rate will remain $80 per day for travel within the continental United States, commonly referred to as CONUS. The rate for travel outside the continental U.S. will remain $86 per day.

The transportation-specific rate is intended for workers in the industry, including truck drivers who are away from home for work. It covers meals and incidental expenses and provides a standard way to calculate the daily amount rather than requiring a driver to document every individual meal and incidental cost.

TBros, a Minnesota-based carrier, describes transportation per diem as the daily allowance the IRS allows truck drivers to deduct for meals and incidental expenses incurred while they are away from home. Using the standard rate can simplify record-keeping and may reduce taxable income compared with tracking each receipt.

The unchanged transportation rate does not mean all per diem calculations will stay the same. Companies using the High-Low Substantiation Method will use higher rates beginning with the new fiscal year.

Under the updated high-low rates, travel to designated high-cost areas will be calculated at $329 per day, up from $319. The rate for other areas will increase to $230 per day, up from $225.

The High-Low Substantiation Method is available to companies in any industry, not only transportation. It is an alternative to the locality-by-locality substantiation method, which relies on separate federal rates for individual destinations.

Rather than assigning a different rate to each locality, the high-low method places destinations into two broad categories: designated high-cost areas within CONUS and all other CONUS locations. Thomas, Zollars & Lynch, a firm that tracks federal tax policy, describes the approach as an alternative to using federal rates for each individual locality.

For carriers and drivers, the distinction between the two approaches matters. A transportation employer or driver using the transportation-specific rate will continue to work from the $80 CONUS figure. An employer using the high-low method will apply the higher $329 or $230 rate, depending on the destination.

The high-cost designation is not based solely on whether a location is a major metropolitan area. It also may apply only during certain periods of the year. As a result, the applicable rate can depend on both the destination and the dates of travel.

For example, Gulf Shores, Alabama, is treated as a high-cost area from June 1 through July 31. Aspen, Colorado, has the designation for nearly the entire year, with October and November excluded. New York City is designated as a high-cost location for all 12 months.

The IRS also changed the list of qualifying high-cost areas. Panama City, Florida, which had appeared on the list previously, is not included in the latest release.

That seasonal and geographic detail is important for companies that use the high-low approach. A trip to the same destination may qualify for the high-cost rate during one part of the year but fall under the standard rate during another. Companies must also account for changes to the IRS list when determining which rate applies.

Per diem rules affect how travel expenses are documented and how taxable income or expense reimbursements are calculated. For drivers, a standard daily rate can reduce the administrative work associated with saving and sorting receipts. For carriers, the choice of substantiation method determines how travel expenses are reported and paid.

The IRS’ latest update therefore produces a mixed result for the trucking industry. The transportation-specific rate remains steady for the coming fiscal year, while companies using the broader high-low method will have higher daily amounts available for qualifying travel.